News of Note
CRA indicates no prohibition against the use of the intergenerational transfer rules on a simultaneous sale of 2 QSBCS corps (one a specified group entity) to a childco
Email this ContentOne of the “intergenerational transfer” rule requirements, in s. 84.1(2.31)(a) or (2.32)(a), is that a previous inter-generational exception to s. 84.1 has not previously been sought. In 2024-1038231C6, CRA addressed the situation where a parent, who has not previously sought out the intergenerational exception, simultaneously disposes of subject shares to two separate purchaser corporations, each wholly-owned by an adult child. CRA indicated that the s. 84.1(2.31)(a) or (2.32)(a) exception could be met on the basis that the two (or multiple) dispositions occur at the same time as part of the same genuine intergenerational transfer.
Now, CRA has provided essentially the same response to a variation on this transaction. An individual, who held all the shares of Opco, which were qualified small business corporation shares (QSBCS), and all of the shares (also QSBCS) of Realtyco, which was a specified group entity and whose sole asset was a commercial building leased to Opco, simultaneously sold all those shares to a corporation wholly owned by her adult child.
CRA indicated that if such simultaneous sale occurred in the context of the same bona fide intergenerational transfer of the business, and no exception had previously been claimed in respect of the same business carried on, the s. 84.1(2.31)(a) or (2.32)(a) condition would be satisfied for each disposition.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.6 under s. 84.1(2.31)(a).
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 3,354 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).
CRA confirms that s. 8(14)(e)(iii) does not preclude a labour mobility deduction for the excess of temporary relocation expenses over non-taxable allowances received
Ss. 8(1)(t) and 8(14) provided the labour mobility deduction to an eligible tradesperson for eligible temporary relocation expenses, which include temporary lodging expenses incurred to travel long distances to earn income from temporary employment in construction, where all the requirements were satisfied.
CRA confirmed that such a tradesperson could (in this context of the other requirements being satisfied) deduct the difference between their accommodation expenses of $200 per night for 15 nights, and the non-taxable allowance received from their employer of $125 per night. Regarding the s. 8(14)(e)(iii) prohibition against taking the deduction “to the extent that” inter alia the tradesperson receives an allowance “in respect of” the relocation expenses unless the allowance is included in their income, CRA indicated that the quoted language excluded the deduction only for the “portion” of the expense which was matched by the non-taxable allowance, so that the $75 per night excess was deductible.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.5 under s. 8(14)(e)(iii).
CRA confirms that it may relieve interest on deficient or insufficient pre-death instalments
CRA, after indicating that if Instalments due before the date of death of the deceased were late or insufficient, interest and possibly a penalty may apply until the date of death, stated that it may consider interest and penalty relief under s. 220(3.1) where it was demonstrated that the deceased taxpayer was unable to comply due to circumstances beyond their control. It further stated:
Each request is examined individually and the CRA takes into account various factors such as the time of death, the method used to calculate the instalments, as well as the supporting documents provided. Depending on the facts of each situation, relief may be provided for all or part of the instalments.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.4 under s. 220(3.1).
CRA indicates that an amalgamation of Acquireco with Targetco should be treated notwithstanding s. 87(2)(a) as being sequenced after the Targetco acquisition
On January 1, 202X, a resident individual (Mr. A) sold all the shares of Targetco for cash consideration to a resident arm’s-length purchase (Acquireco). No s. 256(9) election was made. Also on January 1, 202X, Targetco and Acquireco amalgamated without the certificate of amalgamation specifying the time at which the amalgamation took place.
CRA indicated that the time relevant to determining whether Targetco qualified as an SBC for purposes of the qualified small business corporation shares (QSBCSs) was the actual time of the disposition of the shares by Mr. A. It noted in this regard that s. 256(9) did not deem control of a corporation to be acquired at the beginning of the day for purposes of determining whether a corporation was an SBC.
Although the time of an amalgamation was generally considered to be the earliest time on the date of amalgamation in the absence of a particular time being specified in the certificate of amalgamation, here:
[F]or the purposes of determining whether the shares of the capital stock of Targetco qualified as a QSBCS at the time of their disposition by Mr. A, it would be reasonable to consider that the logical order of the transactions is, first, the disposition by Mr. A of the shares he held in the capital stock of Targetco, followed by the amalgamation between Targetco and Acquireco. Consequently, only the assets of Targetco, without taking into account those of Acquireco, should be taken into account in determining whether Targetco qualified as an SBC at the time of the disposition of the shares by Mr. A.
Thus, it was not relevant that Acquireco held the acquisition cash on January 1 prior to the acquisition and amalgamation.
Neal Armstrong. Summaries of 9 October 2025 APFF Roundtable, Q.3 under s. 256(9) and s. 87(2)(a).
CRA finds no penalty under s. 162(7) for failure to withhold or remit Pt. XIII tax on a s. 214(16)(a) deemed dividend
Interest accrued but was not paid by Canco during its 2024 taxation year on a loan from a non-resident corporation (NRco). Because such interest was not deductible by virtue of s. 18(4), it was deemed by ss. 214(16)(a) and (17)(a) to be paid as a dividend on December 31, 2024. Canco did not remit the Part XIII tax (at a treaty-reduced rate of 5%) until March 2025, shortly after issuing a Form NR4 to NRco for the deemed dividend.
CRA noted that the s. 162(7) penalty was not restricted to failure to timely file a return and also applied to failure to comply with a duty or obligation imposed under the ITA, except where another provision (subject to exceptions), set out a penalty for the failure. There was no penalty under s. 227(8) for the failure of Canco to withhold from the deemed dividend because s. 227(8.5)(a) indicated that this penalty did not apply to an s. 214(16)(a) dividend in these circumstances of no relevant amount having been paid or credited to the non-resident (NRco). The s. 227(9) penalty also was inapplicable because there was no failure to remit an amount which had been withheld (there was none). Did the absence of a penalty under s. 227(8) or (9) for failure to withhold or remit under s.215 mean that there was an s. 162(7) penalty for such failure?
CRA essentially indicated that the exclusion of a penalty under s. 227 evinced a Parliamentary intent that there also should be no penalty under s. 162(7).
CRA also indicated that, pursuant to s. 227(8.3)(b), interest on the Part XIII tax was required to be calculated for the period from the (December 31) day on which it was required to be deducted or withheld to the day of payment of such tax to the Receiver General.
Neal Armstrong. Summaries of 9 October 2025 APFF Roundtable, Q.2 under s. 162(7), s. 227(9), s. 227(8.5)(a) and s. 227(8.3)(b).
CRA states that it cannot cancel Part III tax payable as a result of the CGIR being maintained at ½
A corporation realized a capital gain of $100,000 on May 1, 2024, thereby increasing its CDA from nil to $50,000, then on September 30, 2024 realized a capital loss of $30,000. Based on the proposed reduction in the capital gains inclusion fraction to 1/3, it computed its CDA as having been reduced to $40,000 and immediately paid a $40,000 capital dividend - which resulted in a $5,000 excess for Part III penalty tax purposes because the inclusion rate instead stayed at ½.
Regarding whether CRA would relieve the Part III tax, it noted that its power to waive interest or penalties under s. 220(3.1) does not extend to the waiver of tax imposed under s. 184(2), and that “the only possible relief … would be the election provided for in subsection 184(3) to treat the Excess as a taxable dividend to the recipient or recipients.” Not a word about the FAA s. 23(2) procedure (see, e.g., 2015-0578071E5 F), so perhaps the implication is that CRA does not think it is a big deal for shareholders to be taxable on a dividend under the s. 184(3) procedure.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.1 under s. 184(3).
Income Tax Severed Letters 22 October 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA withdraws IC76-12R9 and reverts to the previous version
Information Circular IC76-12R8 dated January 12, 2022 was replaced by Information Circular IC 76-12R9 dated June 18, 2025. IC 76-12R8 contained statements indicating that if the laws of another country taxed income based on the amount remitted to or received in that country, rather than the full amount of the income, then any exemption or reduction of tax in Canada under a tax convention with such country would generally reduce or relieve Part XIII withholding only on income that was remitted to or received in that other country.
IC 76-12R9 retained these statements but went on to add that, in order for the remittance of income to such a jurisdiction to be eligible for the treaty-reduced rate of withholding, the non-resident taxpayer was required to provide proof that the income was remitted to their country of residence and that the income was taxed or is taxable in their country of residence. Acceptable proof would include written statements to that effect from the taxpayer. (Note that it might be difficult to provide a blanket certification in advance of the receipt of the income.) The remittance-based jurisdictions listed in IC76-12R9 were Barbados, Guyana, Ireland, Malta, Singapore (in respect of corporations and trusts resident in Singapore), and the United Kingdom. (Ironically, effective April 6, 2025, the U.K. abolished the remittance basis for newly arising foreign income and gains and moved to a residence-based regime.)
However, after concerns were expressed that these additions had the effect of requiring Part XIII withholding to be made at the 25% statutory withholding rate on payments to the listed jurisdictions since the NR301 forms on file were no longer sufficient for those jurisdictions, CRA removed IC 76-12R9 from its website (by mid-October 2025) and IC76-12R8 was added back as the most recent version of the Circular still on the CRA website.
Neal Armstrong. Summary of Information Circular IC76-12R8 and IC76-12R9 under s. 212(1).
Wuswig – Tax Court of Canada finds that avoiding s. 93(2) through continuing a US sub to Canada before realizing a capital loss on its shares abused s. 93(2)'s rationale
Wuswig, a CBCA corporation, wholly owned a U.S. holding company (“Southridge Holdings”), whose shares had an accrued capital loss that was exceeded by the total of exempt dividends previously received by Wuswig on those shares. That accrued capital loss was realized pursuant to transactions under which:
- Southridge Holdings was merged into a newly incorporated Delaware subsidiary of Wuswig, with the surviving entity being continued into Canada pursuant to s. 128.1.;
- The continued corporation then issued preferred shares to a Wuswig shareholder so that it ceased to be a wholly-owned subsidiary of Wuswig; and
- The continued corporation then was wound up into Wuswig pursuant to ss. 69(5) and s. 88(2), with ss. 93(2) and (2.01) not denying recognition of the loss because the continued corporation had ceased to be a foreign affiliate of Wuswig.
Ouimet J concluded that this capital loss recognition “frustrated and defeated the underlying rationale” of ss. 93(2) and (2.01), which were “meant to limit the realization of a capital loss on shares of a foreign affiliate of a Canadian taxpayer when the latter has received tax-free dividends from the foreign affiliate” i.e., the series “allowed Wuswig to extract corporate value on a tax-free basis by the payment of tax-free dividends” without those dividends being “subtracted from the capital loss realized.”
Wuswig pleaded that a similar result could have been achieved with clearly non-abusive transactions, namely, Wuswig using dividends received from Southridge Holdings, less 5% withholding tax, to make loans to the underlying U.S. operating subsidiary, with a capital loss later being claimed under s. 50(1) when that debtor became insolvent. However, Ouimet J found that this alternative did not satisfy two of the tests in 3295940 for considering an alternative transaction for abuse-analysis purposes, namely, these alternative transaction did not have a high degree of commercial and economic similarity to the transactions under review, and would not have generated tax consequences approximately as favourable as the transactions under review (because the loans made by Wuswig to the operating subsidiary and, thus, the s. 50(1) loss, would have been an estimated 15% lower).
Neal Armstrong. Summaries of Wuswig Inc. v. The King, 2025 TCC 147 under s. 245(4) and s. 152(1.11).