News of Note

CRA indicates that periods where hydrogen continues to be produced by a clean hydrogen project are not disregarded for s. 127.48 ITC purposes

Some aspects of the investment tax credit (ITC) rules in s. 127.48 for clean hydrogen projects, such as compliance reporting to CRA regarding the project’s “actual carbon intensity" and whether there should be a recapture of the ITCs under s. 127.48(18), turn in part on the concept of an “operating year,” defined to “disregard … any period during which the project is not operating”, so that, for example, if it did not operate for one month, the operating year might be 13 months.

CRA indicated that where hydrogen continued to be produced by the project in each of the following scenarios, the project would be considered to be operating, so that such period would not be disregarded in determining the cumulative 365-day period set out in the “operating year” definition:

  • The carbon capture and storage plant is shut down, but the hydrogen continues to be produced.
  • The supply of the eligible renewable hydrocarbon is disrupted, but the hydrogen continues to be produced using a different eligible hydrocarbon.
  • Dedicated wind turbines are down, but the hydrogen continues to be produced by using electricity from the electrical utility grid.

Neal Armstrong. Summary of 24 June 2025 External T.I. 2025-1063501E5 under s. 127.48(1) – operating year.

CRA expands its discussion of crypto mining groups

CRA has published a revised version of its Notice on cryptoasset mining. This notice has been updated to clarify the types of crypto mining arrangements that would be indicative of a person and a mining pool operator not being members of the same mining group for the purposes of s. 188.2. Being members of the same mining group could have the effect of deeming otherwise-taxable supplies made by the person to the operator not to be taxable supplies.

A “mining group” is a group of persons who agree to contribute property or services to perform mining activities together and who share mining payments in respect of the mining activities.

CRA considers that a person shares mining payments when the person shares in the risk of success in the mining activities of the group. Accordingly, where a person earns compensation that is determined based on an estimate of potential mining payments and the amounts are not adjusted to the actual mining payments, the person may not be considered to share in the mining payments.

For example, where a person is paid by the mining pool operator for the contribution of computing resources by the person and the payment is based on the expected value of the number of blocks validated calculated based on the expected block subsidy (or the expected block subsidy and expected transactions fees) regardless of whether the activity gives rise to an actual block subsidy or transaction fee, the person is considered to bear no risk in the success of earning the block subsidy and transaction fees so that inter alia its services to the operator generally are taxable supplies rather than being deemed under s.188.2 not to be supplies.

Neal Armstrong. Revised summaries of GST/HST Notice No. 324, "Mining Assets in respect of Cryptoassets" June 2025 under ETA s. 188.2(5) and s. 123(1) – consideration.

Income Tax Severed Letters 9 July 2025

This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.

CRA indicates that use of vacant land as a golf range in the somewhat distant past was not exclusive and direct use to meet the objectives of a golf club for s. 149(5)(e)(ii) purposes

A golf club relying on the s. 149(1)(l) exemption sold a severed parcel of land in 2024 that had been owned for 35 years (1990 to 2024) and used as a golf range for 5 of those years (1998-2002), and otherwise was vacant. In finding that the gain was not exempted pursuant to the exemption in s. 149(5)(e)(ii) for “property used exclusively for and directly in the course of providing the dining, recreational or sporting facilities provided” by the golf club for its members, CRA stated that s. 149(5)(e)(ii) “is intended to only exclude taxable capital gains from property that is required and used exclusively to meet the objectives of the tax-exempt NPO” and that the limited historical use in this case was “insufficient to meet the threshold of being property used exclusively for and directly in the course of providing facilities to members.”

Neal Armstrong. Summary of 6 May 2025 External T.I. 2024-1031071E5 under s. 149(5)(e)(ii).

CRA indicates that the 4-unit per title requirement for the PBRH rebate cannot be satisfied through combining title immediately after the purchase

The PBRH (new rental housing) rebate was not available regarding the acquisition of a newly-constructed block of four separately titled properties, each consisting of two dwelling units intended for long-term residential use, since only two (rather than four) residential units per title did not qualify as a multiple unit residential complex for PBRH purposes. Furthermore, this issue could not be remedied by consolidating the block of dwelling units into a single title after the purchase, since this test was not met at the time of the purchase.

Neal Armstrong. Summary of 11 October 2024 GST/HST Interpretation 247959 under Real Property (GST/HST) Regulations, s. 4(2)(a).

GST/HST Severed Letters November 2024

This morning's release of three severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their November 2024 release) is now available for your viewing.

Harika - Tax Court of Canada finds that s. 152(4)(a)(i) effectively refers to a misrepresentation “of fact”, which is engaged by an unreasonable filing position

The taxpayer, who had been assessed beyond the normal reassessment period to treat a real estate gain as business income rather than a capital gain, moved to have the Crown’s Reply struck on the basis that such reporting could not be a misrepresentation for purposes of s. 152(4)(a)(i), because misrepresentation (in light of the French version) meant a misrepresentation of fact, whereas the characterization of the gain was a question of mixed fact and law.

Before rejecting this request, Gagnon J stated:

[B]oth language versions of the provision are equivalent and indeed refer to a misrepresentation of the facts. …

[T]he word “misrepresentation” in English, alone, encapsulates the concept of a false, misleading, wrong or incorrect representation in relation to facts. …

… Because the filing position of a taxpayer involves the disclosing, reporting or characterization of the taxpayer’s underlying factual situation, any false, misleading, incorrect or incomplete disclosure, reporting, or characterization of those facts could constitute a misrepresentation [of the facts]. …

[A] reasonable filing position would be one where, upon review of all of the facts and circumstances that underlie a taxpayer’s situation (fully and accurately addressed), the Minister and the taxpayer could arrive at reasonable—albeit different—conclusions or positions based on a characterization of (or an application of the law to) such facts. Indeed, such an instance would be what [Inwest] has termed a mere “difference of opinion between the CRA and the taxpayer” .. .

[T]he Court cannot agree with the Appellant’s proposition that a question of income versus capital necessarily amounts to a mere difference of opinion. The reasonableness of the Appellant’s filing position—and relatedly, whether a misrepresentation has been made—ought properly to be put before the trial judge.

Neal Armstrong. Summary of Harika v. The King, 2025 TCC 81 under s. 152(4)(a)(i).

We have translated 7 more CRA interpretations

We have translated a CRA interpretation released last week and a further 6 CRA interpretations released in June of 2000. Their descriptors and links appear below.

These are additions to our set of 3,247 full-text translations of French-language Technical Interpretation and Roundtable items (plus some ruling letters) of the Income Tax Rulings Directorate, which covers all of the last 25 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).

Bundle Date Translated severed letter Summaries under Summary descriptor
2025-07-02 29 April 2025 External T.I. 2024-1036641E5 F - Relevant Group Entity Income Tax Act - Section 84.1 - Subsection 84.1(2.31) - Paragraph 84.1(2.31)(c) - Subparagraph 84.1(2.31)(c)(iii) a Realtyco, whose shares qualified as QSBCS based on a related corporation’s active business, would be a “relevant group entity” on a sale of the latter’s shares
Income Tax Act - Section 84.1 - Subsection 84.1(2.32) - Paragraph 84.1(2.32)(c) - Subparagraph 84.1(2.32)(c)(iii) continued control of the related lessor to an Opco would violate the s. 84.1(2.32)(c)(iii) condition on a sale of Opco to a child’s purchaser corporation
2000-06-23 10 May 2000 Internal T.I. 2000-0016257 F - RPA COTISATIONS POUR SERVICES ANTERIEURS Income Tax Act - Section 147.2 - Subsection 147.2(4) - Paragraph 147.2(4)(c) no retroactive deduction
19 May 2000 Internal T.I. 2000-0018477 F - DEDUCTION A LA SOURCE Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(j) amounts paid out of RRSP to trustee in bankruptcy pursuant to judgment were subject to source deductions even though no mention thereof in court order
2000-06-09 8 June 2000 External T.I. 1999-0006105 F - TRANSFERT DE BIENS A UN CONJOINT Income Tax Act - Section 74.1 - Subsection 74.1(1) CCRA has not yet developed a position re where the transferred property itself is returned to the transferor spouse in repayment of the transferee spouse’s debt
15 May 2000 Income Tax Severed Letter 2000-0008210 F - ADMINISTRATEUR DE FACTO Income Tax Act - Section 227.1 - Subsection 227.1(1) individual can be a de facto director who acts as such with the shareholders’ agreement or takes significant actions with 3rd parties in the corporation’s name
31 May 2000 External T.I. 2000-0009695 F - FRAIS MEDICAUX-PREPOSE A PLEIN TEMPS Income Tax Act - Section 118.2 - Subsection 118.2(2) - Paragraph 118.2(2)(b) meaning of “one full-time attendant … for the full-time care of the individual”
5 June 2000 External T.I. 2000-0010615 F - Developpement d'un equipement - RS&DE Income Tax Act - Section 37 - Subsection 37(8) - Paragraph 37(8)(d) expenditures to develop SR&ED equipment could be current expenses

Grenon RRSP – FCA finds that significant distributions of fund units to minors meant that those units had not been lawfully distributed – so that they were not MFTs

Mr. Grenon’s RRSP subscribed $310 million for units of various income funds, which were intended to qualify as mutual fund trusts on the basis that, for each fund, 171 investors had subscribed for 100 (and only 100) units at $7.50 per unit. As they had more than 150 beneficiaries, the principal issue was whether they each satisfied the distribution condition in ITR 4801(a)(i)(A)—that there had been a lawful distribution of units of the trust to the public in circumstances in which a prospectus or similar document was not required to be filed (i.e., in reliance on a private placement exemption).

Here, the private-placement exemption that had been relied on was the offering memorandum exemption (OME) coupled with a condition stipulated in the offering memorandum (OM) that a minimum of 160 investors subscribe. The Grenon RRSP agreed that such minimum "was an essential term". The Tax Court had made a non-reversible finding that 39 of the subscribers in each fund were minors. Agreeing with the Tax Court that this thus established that such minimum had not been lawfully met, Monaghan JA stated that, like the Tax Court, she had "difficulty accepting that provincial securities regulators envisaged minors, some as young as two years old, subscribing for units based on the OME."

Moreover, she found no reasonable error in the Tax Court's “finding regarding adults signing subscriptions and paying for units for other adults and minors”, which further supported the conclusion that the income funds had not “complied with an essential term in their OMs: that they issue units to a minimum of 160 investors in compliance with the OME.”

The above finding established that the units held by Grenon RRSP were not qualified investments. In addition to assessing the Grenon RRSP for tax under s. 146(10.1) on its income, the Minister assessed it for Part XI.1 tax, computed at 1% of the non-qualified investments' acquisition date value. However, by virtue of s. 146(10), Part XI.1 tax did not apply where the acquisition date value was included in the income of the annuitant (Grenon). This was not done because he had not reported such amounts, and those years became statute-bared. Although the Crown accepted that the Minister did not have a choice as to whether to assess the annuitant pursuant to s. 146(10) or the RRSP pursuant to s. 207.1(1)(a), the Crown indicated that no amount "was included in the annuitant's income," as required for the exception from Part XI.1 tax to apply, so that such assessment of Part XI.1 tax could be made.

In rejecting this position, Monaghan JA noted that s. 56(1) provides that "there shall be included in computing the income of a taxpayer for a taxation year" the amount described in that section, including "amounts required by section 146 in respect of a [RRSP] … to be included in computing the taxpayer's income for the year," and s. 146(10), in turn, stated that where an RRSP acquired a non-qualified investment, the acquisition date value "shall be included in computing the income for the year of the taxpayer who is the annuitant." She stated that such language thus “mandates” the inclusion in the annuitant’s income irrespective of whether such income was reported or assessed by the annuitant.

Neal Armstrong. Summaries of RRSP of Grenon v. Canada, 2025 FCA 129 under Reg. 4801, s. 207.1(1)(a) and s. 152(3.1).

CRA confirms that a Realtyco, whose shares qualified as QSBCS based on a related corporation’s active business, would be a “relevant group entity” on a sale of the latter’s shares

The control test, contained in s. 84.1(2.31)(c), generally requires that the parent(s) not have de facto control, after the disposition to the children’s purchaser corporation, of such purchaser corporation, the subject corporation, or any other person or partnership (a “relevant group entity”) that carries on, at the disposition time, an active business that is relevant to the qualification of the shares of the subject corporation as qualified small business corporation shares (QSBCS). There is a parallel rule in s. 84.1(2.32)(c), restricted to the de jure control test.

Two spouses were the equal shareholders of Opco, with an active (telecommunications services) business. One of the spouses (Mr. A) wholly owned Realtyco, whose only asset of consequence was an immovable that it leased to Opco for use in the Opco operations.

CRA confirmed that, in relation to a sale of the shares of Opco by the two spouses to the Holdco of their adult child for non-share consideration, Realtyco would not be considered a relevant group entity, so that continued control of Realtyco by Mr. A would not oust the exception from the application of s. 84.1 for intergenerational transfers of QSBCSs.

Conversely, on a sale of Realtyco by Mr. A to Holdco, would Opco be considered a relevant group entity? CRA indicated that, since Opco carried on an active business and such business of a related corporation was relevant to the qualification of the shares of Realtyco as QSBCS, Opco would be a relevant group entity in connection with such disposition of Realtyco shares.

Neal Armstrong. Summary of 29 April 2025 External T.I. 2024-1036641E5 F under s. 84.1(2.32)(c)(iii).