News of Note
CRA confirms that a room or a basement can be a “residential property” for s. 67.7 purposes, but not as a “housing unit” for flipped property purposes
Email this ContentThe definition of “flipped property” in s. 12(13)(a) refers to a “housing unit;” whereas the definition of “non-compliant short-term rental” in s. 67.7(1) depends on the concept of a “residential property” (also defined in s. 67.7(1)).
What is the difference? For example, would the latter include a bedroom or a section of a residence, such as a basement?
CRA indicated that the term “housing unit” used in the flipped property rules was restricted to a single housing unit.
As a residential property, as defined, referred to all or any part of a (legally compliant) house, apartment, condominium unit, etc., a room or basement would qualify as a residential property for such purposes.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.9 under s. 67.7(1) – residential property.
CRA indicates that deferring the date of disposition of a housing unit to well after the sale date and 366 days after the acquisition date would avoid the flipped property rules
Eight months after acquiring a housing unit, an individual signed an agreement to sell it, but with the date of transfer of ownership being set 366 days after the acquisition date, and with the residence in the meantime being leased to the purchaser.
CRA indicated that if the date of disposition of the residence occurred 366 days after the acquisition date, it would not constitute a flipped property. However, the determination of the disposition date would require an examination of the particular circumstances, including the legal effects and interaction between the sale agreement and the interim lease. That said, CRA noted its longstanding position that, absent sham, determining whether a contract was a lease or a contract for a sale was a function of the legal relationships created by the terms of the agreements, rather than the underlying economic realities.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.8 under s. 12(13)(b).
Joint Committee agrees with Justice proposal to double the informal procedure monetary thresholds
The Tax Court of Canada Act makes the informal procedures available for ITA appeals where the aggregate amounts in issue do not exceed $25,000, or where the amount of a loss determined under ITA s. 152(1.1) does not exceed $50,000; or, for ETA appeals, where the amount in dispute does not exceed $50,000.
Regarding a proposal of the Department of Justice that the above ITA thresholds be increased to $50,000 and $100,000, respectively, and that the above ETA threshold be increased to $100,000, the Joint Committee indicated that its consultations did not indicate any specific concerns with this proposal.
It suggested that the Department of Justice review the monetary thresholds on a regular basis; and noted that some respondents had recommended that the Department of Justice consider undertaking a broader consultation of the tax dispute resolution process.
Neal Armstrong. Summary of 11 November 2025 Joint Committee Submission, “Proposed Amendments to the Tax Court of Canada Act – Increase to Monetary Thresholds for Informal Procedure Appeals,” under Tax Court of Canada Act, under s. 18(1).
Income Tax Severed Letters 12 November 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
DEML Investments – Federal Court of Appeal finds that it abused the rationale of s. 88(1)(d) to bump the ACB of a resource partnership interest
In early 2008, the sale of resource properties by an arm’s length vendor (Transglobe) to the parent (Direct Energy) of the taxpayer (DEML) was structured on the basis that Transglobe transferred 99% and 1% of the resource properties to two wholly-owned Newcos (137 and 138, respectively), at a s. 85(1) elected amount of around $34.9 million in the case of the transfer to 137, which then transferred the resource properties on an s. 97(2) rollover basis to a newly-formed partnership (DERP 2) for nominal elected amounts, with no effect on the addition to the CCOGPE balance of 137 from the first transaction of $34.9 million (consistent with the ITA scheme for the CCOGPE being maintained at the partner, not the partnership, level). Direct Energy then acquired the shares of 137 and 138 from Transglobe for $51 million and $0.5 million, respectively.
A year later, Direct Energy transferred the shares of 137 to DEML on an s. 85(1) rollover basis, with 137 then distributing its partnership interest in DERP 2 to DEML on its winding up, with the ACB of that partnership interest being bumped under s. 88(1)(d).
DERP 2 then distributed its resource properties to DEML as a return of capital, thereby increasing the CCOGPE balance of DEML and reducing the ACB of DEML’s partnership interest by the FMV of the resource properties – but with these items effectively being approximately reversed at the partnership year end as a result of DERP 2’s proceeds of the distribution of the resource properties being allocated to its partners.
After then reseeding DERP 2 with a small resource property that was of interest to a third-party purchaser, DEML sold its partnership interest to that purchaser, thereby realizing a capital loss.
Before finding that the GAAR applied to deny that portion of the above capital loss that was attributable to the s. 88(1)(d) bump, Webb JA first found that the rationale of the bump provisions was to allow the parent to add some or all of ACB lost on winding-up a sub to the ACB of non-depreciable capital property acquired by it on the sub’s winding-up, but that, “as noted in Oxford Properties, the property to which the ACB is effectively transferred must be a non-depreciable capital property that would be taxed at the same rate of inclusion as the shares of the subsidiary that will disappear on the winding-up of the subsidiary.”
Furthermore:
The use of a partnership to bump up the ACB of the partnership interest when the partnership holds a Canadian resource property frustrates the distinction between a non-depreciable capital property and a Canadian resource property as it results in a bump in the ACB of a partnership interest when the underlying value of that partnership interest is attributable to a Canadian resource property.
After further observing that the transactions here entailed a “doubling up of tax attributes” in that there was a bump to the ACB in the partnership interest attributable to the value of DERP 2’s resource properties, yet at the same time DEML maintained a significant balance in its CCOPGE account ($34.9 million) in relation to the same Canadian resource properties, Webb JA stated (at para. 74):
The rationale of these provisions is not to allow a corporate parent to have access to both an increased ACB of a partnership interest held by that subsidiary and also access to the CCOGPE of the subsidiary maintained for the Canadian resource properties that are owned by that partnership.
Neal Armstrong. Summary of DEML Investments Limited v. Canada, 2025 FCA 204 under s. 245(4).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in January of 2000. Their descriptors and links appear below.
These are additions to our set of 3,367 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 ½ 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 |
|---|---|---|---|
| 2000-01-07 | 16 December 1999 External T.I. 9925755 F - COMMUNAUTÉ DE BIENS - RÈGLE D'ATTRIBUTION | Income Tax Act - Section 248 - Subsection 248(23.1) - Paragraph 248(23.1)(b) | application of s. 248(23.1)(b) to shares acquired by the deceased spouse pursuant to the partition of the community of property on her death engaged s. 74.2(1) |
| Income Tax Act - Section 74.2 - Subsection 74.2(1) | application of s. 248(23.1)(b) to partition on death of community of property caused s. 74.2(1) to apply to the resulting shares received by the estate of the deceased spouse | ||
| 16 December 1999 External T.I. 9907425 F - REVENU D'ENTREPRISE - INDIEN | Other Legislation/Constitution - Federal - Indian Act - Section 87 | business of transporting Indians between the reserve and off-reserve health-care facilities was exempted | |
| 15 December 1999 External T.I. 9907635 F - REVENU GAGNÉ - AUGMENTATION ARTIFICIELLE | Income Tax Act - Section 55 - Subsection 55(2.1) - Paragraph 55(2.1)(c) | CCRA monitors whether there has been an artificial creation of safe income through not claiming CCA | |
| 16 December 1999 External T.I. 9908945 F - REMBOURSEMENT DE FRAIS RELATIFS AUX ETUDES | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) | reimbursement by new employer of tuition fees previously incurred by employee was taxable under s. 6(1)(a) or 6(3) | |
| 9 December 1999 External T.I. 9910665 F - DETTE D'UN ACTIONNAIRE-HABITATION | Income Tax Act - Section 15 - Subsection 15(2.4) - Paragraph 15(2.4)(e) | loan to sole shareholder/employee received qua shareholder unless such a loan could be demonstrated to be received by employees | |
| Income Tax Act - Section 15 - Subsection 15(2.4) - Paragraph 15(2.4)(f) | reasonable repayment term determined by reference to ordinary business practice | ||
| 4 August 1999 External T.I. 9921050 F - ÉVALUATION DES ACTIONS AU DÉCÈS | Income Tax Act - Section 70 - Subsection 70(5.3) | s. 70(5.3) applicable even where policy beneficiary of policy taken out by corporation is one of its creditors |
Homburg – Tax Court of Canada finds that the taxpayer failed to establish that family trusts rather than he had de facto control of a public corporation
The taxpayer failed to establish that a public corporation was controlled by the independent trustee of two family trusts rather than by him.
The assumptions pleaded by the Crown did not establish de jure control by the taxpayer, nor did the evidence adduced establish such control. However, the evidence was sufficient to establish that the taxpayer had de facto control of the corporation and its successor. In particular, the circulars issued by the corporation and its successor repeatedly and specifically stated that the taxpayer had indirect control of it through his shareholdings of group companies. Thus, the taxpayer had sufficiently significant influence and control over it to constitute de facto control.
Accordingly, the denial of his s. 110(1)(d) deduction regarding his exercise of stock options that had been granted to him by the corporation was confirmed by Hill J.
Neal Armstrong. Summary of Homburg v. The King, 2025 TCC 162 under s. 251(1)(c).
CRA considers that a housing unit includes a co-ownership interest therein for purposes of the flipped property rules
An individual who had held a 1/2 ownership interest in a cottage for a number of years, acquired the other 1/2 ownership interest in 2025 shortly before selling a 1/2 ownership interest in the cottage to a third party.
CRA considers that the reference in the flipped property rules to a housing unit includes a co-ownership interest therein. Accordingly, he would be considered to have held a housing unit for more than 365 days in respect of his sale of the co-ownership interest, so that the flipped property rules would not apply.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.7 under s. 12(13)(a)(i).
CRA finds that s. 12(14) does not deny losses on the disposition of housing units
S. 12(14) provides that a taxpayer’s loss from a business in respect of a flipped property is deemed to be nil.
CRA found that s. 12(14) does not deem a loss on the disposition of a housing unit to be nil, irrespective of whether the housing unit was held as inventory or capital property. If held as inventory, a flipped property by definition excludes inventory. If held as capital property, deeming a loss from a business to be nil does not have the effect of deeming a capital loss to be nil.
Although not stated by CRA, the implication appears to be that s. 12(14) only denies the deduction of net operating losses from the fictional flipped-property business.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.6 under s. 12(14).
CRA indicates that the payer of TOSI does not have to identify it as such on its tax-reporting slips
CRA indicated that the ITA did not impose any specific reporting requirements (e.g., making a notation on the applicable T5 or T3 tax slip) on the payer of income subject to the tax on split income (TOSI) – but noted that where a trust is allocating TOSI to a beneficiary, an additional statement indicating the beneficiary's share of the income and the type of income must be attached to the T3 slip. The beneficiary should also be advised in writing that the beneficiary can be required to file Form T1206., “Tax on Split Income”.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.5 under Reg. 201(1).