News of Note
Income Tax Severed Letters 1 October 2025
Email this ContentThis morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Husky Energy – Federal Court of Appeal finds that a securities loan between residents of two Treaty countries did not change the beneficial ownership of the transferred shares
Before a Canadian public corporation (“Husky”) paid a dividend on its shares, two significant shareholders of Husky resident in Barbados (the “Barbcos”) transferred their shares under agreements styled as securities lending agreements to related companies resident in Luxembourg (the “Luxcos”). On payment to the Luxcos of a special dividend on those shares, Husky withheld at the Luxembourg Treaty-reduced rate of 5%. Pursuant to the terms of the lending agreements, the Luxcos paid dividend compensation payments to the Barbcos equal to the gross amount of such special dividends to the Barbcos, and later returned the borrowed shares to the Barbcos.
In finding that the Tax Court did not err in concluding that the 5% Luxembourg Treaty-reduced rate did not apply because the Luxcos were not the beneficial owners of the special dividends, Goyette J.A. noted that they essentially had not assumed any risk with respect to the receipt of those dividends, including by entering into “perfect hedges” with respect to FX risk with related parties, or experienced any significant net monetary consequences. The Tax Court’s finding was consistent with the 2003 OECD Commentaries, which indicated that a company is not normally the beneficial owner of dividends if, though the formal owner, it only has “very narrow powers … in relation to the income concerned”.
Furthermore, the finding that the Luxcos, as the borrowers of the Husky shares, were not the beneficial owners of the dividends did not shed an adverse light on the application of treaties to true securities lending arrangements since the agreements between the Barbcos and Luxcos were not in legal substance securities lending agreements. First, the parties never intended for the Luxcos to sell or lend the borrowed Husky shares, which represented 71.5% of all the outstanding Husky shares; and, second, they had agreed that the Luxcos would not post any collateral.
The Tax Court had found that s. 212(2) imposed tax at 25% (although CRA had only assessed at 15%) on the basis of the persons to whom the dividends had in fact been paid (the Luxcos). Since the dividends had not been paid to Barbados residents (the Barbcos), the Barbados treaty rate of 15% was unavailable. Furthermore, the Luxembourg Treaty rate was unavailable because the Luxcos were not the beneficial owners of the dividends,
Goyette JA indicated that this finding was troubling, as it would suggest that a financial institution custodian resident in one country holding for the beneficial owner resident in a second country, would not be eligible for the Treaty-reduced rate applicable to the country of residence of the beneficial owner. However, it was not necessary for her to address this issue, although she should not be taken to have endorsed the Tax Court's interpretation of s. 212(2).
Neal Armstrong. Summaries of The King v. Husky Energy Inc., 2025 FCA 176 under Treaties – Income Tax Conventions – Art. 10 and s. 212(2).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in February of 2000. Their descriptors and links appear below.
These are additions to our set of 3,330 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).
Héroux – Quebec Court of Appeal finds that ETA s. 296(2.1) requires the acceptance of late refund claims
The taxpayer, who was not a registrant, constructed various new rental units in 2014 and 2015. After the expiry of the two-year period under the Quebec equivalents of ETA s. 257(1) for claiming input tax refunds (ITRs), and under ETA s. 256.2(7)(a)(iii) for claiming the new rental housing rebate (NRHR), the taxpayer filed QST returns in which he self-assessed QST on the fair market value (FMV) of the facilities when they were first rented out and claimed NRHR and ITR rebates, resulting in a net refund claim.
The ARQ denied the refund claims on the basis that the two-year periods for making such claims had expired. Did s. 30.5 of the Tax Administration Act (Quebec) require the ARQ to take such refund claims into account when assessing, given that para. 2(a) of that provision stipulated that such requirement did not apply where "a claim was made and not refused in respect of the refund before the day on which the Minister made the assessment"?
In finding that the 2(a) exclusion only applied where a refund claim had previously been made within the two-year normal claim period, so that it did not apply to the taxpayer whose refund claims instead had been made late, Hamilton JCA stated:
The [2(a)] exception aims to prevent double refunds: if the person has a refund claim that is pending at the time of the notice of assessment, it must, in principle, proceed. However, in this case, the refund claims were late … [and] were doomed to fail from the outset due to the expiration of the deadline. … Those claims should not, however, prejudice his rights. In other words, exception (a) must be interpreted as being limited to claims that could be accepted and could lead to double refund, and thus only to those submitted within the two-year period prescribed by statute.
After referring to the “presumption of coherence between provincial and federal statutes in GST/QST matters,” Hamilton JCA indicated that it appeared that ETA s. 296(2.1)(b) should be similarly interpreted. He did not discuss ETA s. 296(4)(b), which also could be relevant to a late claim for ITCs.
Neal Armstrong. Summaries of Agence du revenu du Québec v. Héroux, 2025 QCCA 1167 under ETA s. 296(2.1)(b), s. 225(1) - B and Statutory Interpretation – Similar Statutes.
Most of the MAG shareholders have opted to receive Pan American shares for their MAG shares which, because of proration, includes a substantial cash component
The MAG shareholders have approved an acquisition of MAG by Pan American pursuant to a BC plan of arrangement.
Each MAG shareholder was given the choice of electing to receive either the “Cash Consideration” of US $20.54 per MAG share, or the (Pan American) “Share Consideration” which, in order to avoid the application of s. 85.1, included a nominal cash component of US $0.0001 per MAG share. However, this was subject to a requirement that the aggregate consideration be fixed at US $500,000,000 in cash, with the balance in Pan American shares. In fact, only around 1.71% of the MAG shares elected to receive the Cash Consideration election, so that the balance of the shares, subject to the Share Consideration option will, in fact, receive around US $4.56 per share in cash.
“Eligible Holders” (generally, Canadian taxable investors) receiving the Share Consideration will be permitted to make a joint election under ITA s. 85(1) with Pan American, provided that they submit their duly signed and completed election form to Pan American within 60 days after the effective date of the Arrangement.
Neal Armstrong. Summary of Circular of MAG Silver Corp. (the "Company" or "MAG") respecting an Arrangement involving it and Pan American Silver Corp. (the "Purchaser" or "Pan American"), dated June 6, 2025 under Mergers & Acquisitions – Mergers – Shares for shares and nominal cash, or cash.
CRA finds that the electrolysis of sodium chloride solution producing hydrogen only as a by-product did not qualify as the “electrolysis of water” for clean hydrogen purposes
Whether a project, which used the chlor-alkali process or the chlorate process, constituted a qualified clean hydrogen project depended on whether, in accordance with the “eligible pathway” definition, such processes produced hydrogen from “electrolysis of water.”
CRA concluded that neither process so qualified given inter alia that these processes used electrolysis of sodium chloride solution to generate primarily sodium hydroxide or chlorate compounds, and the hydrogen produced was a relatively minor by-product.
Neal Armstrong. Summaries of 26 May 2025 External T.I. 2025-1056481E5 under s. 127.48(1) – eligible pathway and Statutory Interpretation – ordinary meaning.
Wygodny – Court of Quebec decision establishes that you should be careful whom you marry, especially if she lives in Quebec
The taxpayer was assessed by the ARQ for his 2014 to 2018 taxation years on the basis that he was resident in Quebec rather than Ontario.
He clearly was an Ontario resident until he met his future second wife in 1989 (whom he married in 1992). Thereafter, he started staying at various residences of his wife in Quebec when they were not wintering in Florida, and she never came to Ontario. Although he had maintained an Ontario driver's licence, vehicle registration and health care coverage, and his adult children (from his first marriage) remained in Ontario, the evidence established that his life had become centered in Quebec.
For example, an ARQ analysis of his expenditures showed that over 95% of his grocery and hardware-store purchases were made in Quebec. He failed to establish that he was paying rent to his children in Ontario to stay at their residences and, indeed, it appeared that he mostly stayed in hotels when he came to Ontario to attend to his real estate interests there.
Before dismissing the taxpayer’s appeal, Philippe J.C.Q. stated:
The Court concludes, after analyzing all the connecting factors, that Mr. Wygodny had brief stays in Ontario and clearly established his place of residence in Quebec over time.
Neal Armstrong. Summary of Wygodny v. Agence du revenu du Québec, 2025 QCCQ 4305 under s. 2(1).
CRA indicates that a s. 127.46(12) top-up amount to union pay levels can be “paid” through the worker taking additional vacation days
An incentive claimant with a (clean economy) “specified property” project was required to pay a “top-up amount” under s. 127.46(12) after CRA on audit determined that a non-unionized covered worker had been paid less than the prevailing union wage level as articulated in s. 127.46(3)(b)(i)(B).
CRA indicated that the top-up amount could be “paid” in the form of the covered worker taking additional vacation days, and that the payment would be considered to occur (e.g., for payroll source deduction purposes) when those vacation days were taken rather than when the vacation day credit was granted.
Neal Armstrong. Summaries of 2024-1043251I7 under s. 127.46(11) and s. 127.46(14).
CRA indicates that the BC Home Flipping Tax cannot be deducted in computing gain on the flip
In general, the “BC Home Flipping Tax” is imposed where a residential property located in B.C. that was owned for fewer than 730 days is disposed of for proceeds that exceed the cost of acquiring the property and other allowed costs.
CRA indicated that if the disposition occurred on income account, the tax did not qualify by virtue of s. 18(1)(a) for deduction in computing the profit given inter alia that “the expense appears to be incurred only if there is profit” and it “is not incurred for making the disposition but is rather incurred as a consequence of making the disposition.”
Similarly, if the disposition occurred on capital account (keeping in mind the narrowing of this field by virtue of s. 12(13)), it did not qualify as a disposition expense under s. 40(1)(a)(i) given inter alia that it “is incurred not in making the disposition, but as a consequence of making the disposition” and, therefore, is not “incurred for the purpose of making the disposition.”
Neal Armstrong. Summaries of 12 June 2025 External T.I. 2025-1051441E5 under s. 18(1)(a) – income-producing purpose and s. 40(1)(a)(i).
Halvorson – Tax Court of Canada finds that severe sleep apnea did not entitle an individual to the disability tax credit
The taxpayer, who suffered from severe obstructive sleep apnea, was required to use a continuous positive airway pressure (CPAP) device at night. He maintained that he was eligible for the disability tax credit on the basis inter alia that he satisfied the requirement in s. 118.3(1)(a.1)(ii) that he spent at least 14 hours per week on therapy in the guise of spending over two hours per night trying to fall asleep or back to sleep after sleep disruption.
In finding that such time did not qualify under s. 118.3(1.1)(a) as being time "spent on activities that require the individual to take time away from normal everyday activities in order to receive the therapy," Derksen J.A., found that those quoted expressions did not include falling or trying to fall asleep, which was a normal everyday activity.
Neal Armstrong. Summaries of Halvorson v. The King, 2025 TCC 124 under s. 118.3(1.1)(a) and s. 118.3(1)(a.1)(i).