News of Note
Re s. 129(1.2), CRA states that it “is particularly concerned with arrangements … where a corporation obtains a dividend refund without the related shareholder tax being paid”
Email this ContentAs directed by the terms of the will of an individual (Shareholder A) holding the high-low preferred shares of Opco (having a redemption value of $1 million) and its common shares, the preferred shares were gifted on the individual’s death to an arm’s-length registered charity as an excepted gift (as per s. 118.1(19).) At that time Opco had an FMV of $5 million a NERDTOH balance of $250,000. The redemption of the preferred shares in the hands of the charity resulted in a deemed dividend of $1 million and a dividend refund claim by Opco of $250,000.
Would s. 129(1.2) apply to deny the dividend refund?
After noting that it “is particularly concerned with arrangements, such as the current situation, where a corporation obtains a dividend refund without the related shareholder tax being paid,” CRA stated:
With respect to the current situation, the stated facts that:
- the terms of Shareholder A’s will expressly provide that the Preferred Shares are to be gifted to the Charity, without any apparent discretion afforded to the executor of the Estate; and
- Opco had sufficient assets to pay a taxable dividend and obtain a dividend refund even if the series of transactions was not carried out,
are not sufficient, in and by themselves, to conclude on whether or not the purpose test was satisfied in the circumstances. … [T]he determination of purpose is based on facts that are particular to a situation, including, but not limited to, the actions taken by the parties and their motivation.
Neal Armstrong. Summary of 18 September 2025 Roundtable, 2025-1067971C6 - CLHIA 2025 – Q.4 under s. 129(1.2).
CRA finds that s. 83(2.1) (then the s. 87(2)(z.1) exclusion) would apply where corporate life insurance proceeds (giving rise to a CDA addition) were used for a loan repayment rather than distribution
Opco A used the proceeds of a recently-purchased policy on the life of it principal shareholder (now deceased) to repay a $100,000 loan from an arm’s length corporation (Opco B), with Opco A then being sold for $10,000 by the surviving spouse to Opco B, amalgamated with it and with Amalco promptly paying a purported $100,000 capital dividend to its shareholder.
CRA indicated that s. 87(2)(z.1) excluded the $100,000 CDA of Opco A from the CDA of Amalco given that s. 83(2.1) would have deemed a purported capital dividend paid by Opco A immediately before the amalgamation to be a taxable dividend:
- First, “one of the main purposes of the acquisition of the shares of Opco A by Opco B was to acquire Opco A’s capital dividend account”.
- Second, s. 87(2.3) did not exclude the application of s. 83(2.1) because the proceeds of the policy were fully used by Opco A to repay the loan prior to the amalgamation, signifying that the proceeds were not used as described in s. 83(2.3), namely, to distribute the proceeds of a life insurance policy.
- Third, s. 87(2.3) also did not exclude the application of s. 83(2.1) because, pursuant to s. 83(2.4)(b), substantially all of the CDA account of Opco A consisted of amounts that were in its CDA account before it became related to Opco B.
Neal Armstrong. Summary of 18 September 2025 Roundtable, 2025-1067941C6 - CLHIA 2025 - Q.3 under s. 83(2.3).
CRA indicates that s. 163(2) can extend to false statements (not just returns) provided to CRA for ITA purposes
2010-0356511I7 found that a false invoice produced on audit did not directly engage s. 163(2). CRA indicated that this would no longer be its view in light of a 1998 amendment to s. 163(2), which replaced the reference to inter alia a false statement in a return (broadly defined to include a “statement or answer”) filed or made “as required by or under this Act or a regulation” with a reference to a false statement in a return filed or made “for the purposes of the Act.”
CRA indicated that in light inter alia of this amendment, which “broaden[ed] the application of the penalty … to a false statement or omission made ‘for the purposes of this Act’,” s. 163(2) could now extend, for example, to false documents submitted to support a request to amend a return.
Neal Armstrong. Summary of 24 June 2025 Internal T.I. 2022-0956161I7 under s. 163(2).
Income Tax Severed Letters 31 December 2025
This morning's release of five severed letters form the Income Tax Rulings Directorate is now available for your viewing.
Cohen – Federal Court refuses to provide a s. 231.7 compliance order where the taxpayers seemed cooperative but did not provide all the requested documents
CRA made an extensive demand for information (covering eight pages) pursuant to s. 231.1(1) to the individual respondent and related corporations. They then delivered some of the requested documents.
After noting that, per s. 231.5(2), a person must do everything required by ss. 231.1 and 231.2 “unless the person is unable to do so”, so that such “person must demonstrate reasonable efforts to satisfy the Court on a balance of probabilities that they are unable to produce the information” (para. 45), Saint-Fleur J went on to decline to grant a s. 231.7 compliance order, stating:
Here, the Respondent has provided a detailed list of all the documents and information provided by him and by the other Respondents respecting each item requested in the requests for information by the CRA. When an item was not delivered, the Respondent provided detailed justification and explanation of effort as to why it has not been delivered. Furthermore, the Respondents have provided … copies of 766 electronic files … .
… Considering the above and in light of the seriousness of the consequences for non-compliance … I am unable to conclude that the Respondents were uncooperative.
Neal Armstrong. Summary of Canada (National Revenue) v. Cohen, 2025 FC 2012 under s. 231.7.
CRA confirms a look-through approach to applying treaties to dividends paid by Canco to a partnership between a German and US partner
CRA confirmed its position that, for treaty purposes, dividends paid by a Canadian corporation to a partnership are considered as paid to the partnership members in proportion to their ownership interests. Where a dividend was paid by the Canco to an 80-20 US general partnership (USP) between a German and US corporate partner:
- The 20% US partner would be entitled to the treaty-reduced rate of 5% since by virtue of Art. X(2)(a) of the Canada-U.S. Treaty it was treated as owning the voting stock in Canco in proportion to its 20% ownership interest in USP; and
- The 80% German partner would be entitled under Art. 10(2)(a) of the Canada-Germany Treaty (referencing where “the beneficial owner [of the dividends] is a company that controls at least 10 per cent of the voting power in the company paying the dividends”) to the treaty-reduced rate of 5% since, under Canadian case law and CRA interpretations as to the meaning of “controls”, it would under the terms of the partnership agreement (according it 80% of the voting rights ) control USP and, thus, Canco.
Neal Armstrong. Summary of 6 September 2024 External T.I. 2019-0796831E5 under Treaties – Income Tax Conventions – Art. 10.
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in December of 1999. Their descriptors and links appear below.
These are additions to our set of 3,412 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 26 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 |
|---|---|---|---|
| 1999-12-24 | 14 July 1999 Internal T.I. 9913170 F - APPLICATION 20(4) | Income Tax Act - Section 20 - Subsection 20(4) | no s. 20(4) deduction for payment made on a guarantee of an assumed mortgage (being a novated mortgage) given at the time of sale of the building |
| 16 September 1999 External T.I. 9913250 F - AVANTAGE À UN ACTIONNAIRE | Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(a) - Income-Producing Purpose | asset purification expenses incurred for business reasons of the corporation should satisfy the s. 18(1)(a) test | |
| Income Tax Act - Section 15 - Subsection 15(1) | expenses reasonably incurred for business reasons relating to the corporation are disregarded for s. 15(1) purposes | ||
| 26 October 1999 Internal T.I. 9913270 F - BOISE-ENTREPRISE OU PLACEMENT | Income Tax Act - Section 248 - Subsection 248(1) - Farming | woodlot operation can be farming if its main purposes is not logging | |
| 26 October 1999 Internal T.I. 9913280 F - PERTE EN CAPITAL VS PTPE | Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(c) - Subparagraph 39(1)(c)(ii) | s. 111(4)(d) loss cannot be a BIL under s.329(1)(c)(ii) (but might be under 39(1)(c)(i)) | |
| 28 October 1999 Internal T.I. 9913290 F - APPLICATION DE LA LOI | Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) | “anything” is comparable to “property” | |
| 26 October 1999 Internal T.I. 9913300 F - CADEAU BOISSON, VOYAGE BATEAU | Income Tax Act - Section 67.1 - Subsection 67.1(1) | limitation applies to an expense for the purchase of bottles of beverages that will be given to customers | |
| Income Tax Act - Section 67.1 - Subsection 67.1(4) - Paragraph 67.1(4)(a) | s. 67.1(4) does not extend to boats (e.g., cruise ships) since a significant amount paid for the trip might relate to food, beverages and entertainment |
CRA indicates that a deemed trust (e.g., under s. 149(5)) is not subject to Sched. 15 reporting if it satisfies the historical s. 150(1.1)(b) T3 filing exception
Where a deemed trust pursuant to s. 149(5) arises over the property of a non-profit organization (NPO), for example, a bank account, would the deemed trust be required by Reg. 204.2(1) to submit a Sch. 15 with its T3 return for each year?
CRA indicated that, based on its understanding that a deemed trust is not an express trust, s. 150(1.2) would not override the exemption in s. 150(1.1)(b) from filing a T3 return if the deemed trust had no Part I tax payable for the year (for example, if pursuant to s. 149(5)(f), its property income was under $2,000) and there were no relevant dispositions in the year. If the deemed trust was required to file a T3 return because the s. 150(1.1)(b) exemption did not apply, then it would indeed be required by Reg. 204.2(1) to include a Sched. 15. However, since the deemed trust does not have a settlor or beneficiaries, it would not need to complete that part of the Schedule 15 – but it would, however, be required to report the trustee of the deemed trust referred to in s. 149(5)(b) or (c).
Perhaps the point of interest is that, on its face, Reg. 204.2(1) appears to require any trust to file Sched. 15 if it is not subject to one of the exceptions listed in ss. 150(1.2)(a) to (o) – so that the Regulation does not seem to explicitly acknowledge the s. 150(1.1)(b) filing exemption. Thus, CRA may implicitly be acknowledging the principle (see, e.g., Auer and McNeeley), that a regulation cannot override or undercut a provision of the Act.
Neal Armstrong. Summary of 27 August 2025 External T.I. 2025-1057461E5 under Reg. 204.2(1).
Boylu – Tax Court of Canada finds that an Uber driver was self-employed
Friedlander J. found that although the Uber app governed many crucial aspects of the taxpayer’s activities as an Uber driver, including access to the market, the pricing of rides, and payment, the taxpayer nonetheless (on the basis of the “very limited” evidence) should be treated as an independent contractor rather than an Uber employee given his complete control over his car and its hours of driving, and as to whether or not to use another ride sharing service. This meant that his fares for the assessed years (2015 and 2016) were subject to HST subject to the small supplier exclusion.
The Justice pleadings had implicitly misinterpreted the exclusion (by treating the taxpayer as having ceased to be a small supplier at the particular point in 2015 at which the $30,000 threshold was exceeded for that year), so that, to be procedurally fair, Friedlander J treated him as being a small supplier throughout 2015. Accordingly, only the fares charged after January 2016 were subject to HST. It did not matter that, given the way the Uber app operated, he had no practical ability to collect HST on his fares. (A subsequent amendment effectively excluded Uber etc. drivers from being small suppliers.)
Neal Armstrong. Summaries of Boylu v. The King, 2025 TCC 192 under ETA s. 123(1) – service - (c), s. 148(1), s. 240(1.1) and Input Tax Credit Information (GST/HST) Regulations, s. 2(a).
Income Tax Severed Letters 24 December 2025
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.