News of Note
Income Tax Severed Letters 13 August 2025
Email this ContentThis morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA confirms T4A slip requirements and the potential for penalties
Regarding a non-profit corporation operating a youth baseball league in Ontario which was paying fees to independent contractors for their services of officiating at the games, CRA noted that its administrative exception from the T4A slip requirement for services fees of less than $500 per year, and for services rendered to individuals by professionals or for repairs or maintenance of an individual’s principal residence, did not apply, so that T4As were required.
CRA indicated that the late-filing penalties under ss. 162(7.01) and (7.02) could apply cumulatively for failure to file the T4As; and also seemed to imply that the $2500 penalty under s. 162(7)(a) could apply (which seems incorrect – it does not apply if s. 162(7.01) or (7.02) applies).
Since the officials were residents, there would be no payor liability to pay their taxes.
Regarding the s. 238 offence, CRA stated:
While the broad wording of subsection 238(1) applies to a failure to file or make a return as and when required, the provincial courts require the CRA to have served the taxpayer with a Notice of Requirement under section 231.2, in respect of which the taxpayer failed to comply.
Neal Armstrong. Summaries of 17 November 2022 External T.I. 2022-0930451E5 under Reg. 200(1), s. 162(7.01) and s. 238(1).
A graduated rate estate may recognize a capital loss for s. 164(6) carryback on a personal-use property of the deceased such as a principal residence
2008-0280751E5 indicated that an estate which sold the principal residence of the deceased (which was vacant in its hands) within one year of the death was able to claim a capital loss based on the amount of depreciation in value of the residence from the time of death, given that the residence did not constitute personal-use property to it, so that it could then carry back the loss under s. 164(6).
A capital loss could be generated by a graduated rate estate in other situations, for example, where the estate received other personal-use property of the deceased, such as a yacht that then depreciated in value while being kept in drydock, or where it received a large piece of real estate, only a portion of which qualified as the principal residence of the deceased, so that a capital loss could be claimed and carried back under s. 164(6) respecting the entire property.
Neal Armstrong. Summary of Balaji Katlai and Henry Korenblum, “Estate’s Loss on Former Principal Residence Carried Back,” Canadian Tax Focus, Vol. 15, No. 3, August 2025, p. 7 under s. 164(6).
We have translated 8 more CRA severed letters
We have translated a CRA interpretation released last week, a ruling released the previous week and a further 6 CRA interpretations released in April of 2000. Their descriptors and links appear below.
These are additions to our set of 3,284 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 |
|---|---|---|---|
| 2025-08-06 | 6 May 2025 External T.I. 2024-1010641E5 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) | the retention of Opco’s real estate in the parent’s Realtyco after a sale of Opco to the child’s Holdco does not render Realtyco a relevant group entity |
| 2025-07-30 | 2024 Ruling 2024-1027631R3 F - Post-mortem planning - Pipeline | Income Tax Act - Section 84 - Subsection 84(2) | classical 24-month pipeline transaction for an investments company whose portfolio had performed poorly |
| 2000-04-28 | 13 April 2000 Internal T.I. 2000-0005737 F - IMPOSITION DES RISTOURNES | Income Tax Act - Section 135 - Subsection 135(4) - Allocation in Proportion to Patronage | insufficient information to determine whether allocations in proportion to patronage, or volume rebates |
| Income Tax Act - Section 9 - Timing | year end rebate amounts, if not allocations in proportion to patronage, were not includible at that time in s. 9 income as the conditions precedent for their payment had not yet been met | ||
| 10 February 2000 Internal T.I. 1999-0014267 F - PRESCRIPTION | Income Tax Act - Section 152 - Subsection 152(4.01) - Paragraph 152(4.01)(a) - Subparagraph 152(4.01)((a)(i) | misrepresentation re underreported income could not be used as basis for reassessing expenses for which there had been no misrepresentation of fact | |
| 2000-04-14 | 5 April 2000 External T.I. 1999-0004235 F - PERTE AU TITRE D'UN PLACEMENT D'ENTREPRISE | Income Tax Act - Section 39 - Subsection 39(12) | s. 39(12) applied to debts acquired by subrogation by paying guaranteed debts seriatim on due dates provided that the guaranteed corp met the SBC test on the first such guarantee payment |
| 31 March 2000 External T.I. 1999-0008715 F - PROPOSE DE LA LOI - XXXXXXXXXX | Income Tax Act - Section 120.4 - Subsection 120.4(1) - Split Income - Paragraph (c) - Subparagraph (c)(ii) - Clause (c)(ii)(C) | split income to minor child beneficiary of trust partner in partnership providing admin services to father’s professional partnership | |
| 18 January 2000 Income Tax Severed Letter 9932456 F - MOT PAYABLE BIEN MEUBLE LÉGUÉ UNIVERSEL | Income Tax Act - Section 104 - Subsection 104(24) | income of Quebec estate was not payable to the residuary beneficiary unless it was generated after estate admin was completed | |
| Income Tax Act - Section 152 - Subsection 152(4.2) | CCRA could reassess estate statute-barred years to allow deduction under ss. 104(6) and (24) for income that became payable after estate administration was complete | ||
| 6 April 2000 External T.I. 2000-0009515 F - Choix 1103(1) et Immeubles locatifs | Income Tax Regulations - Regulation 1103 - Subsection 1103(1) | corporation holding and managing rental properties is carrying on a business |
CRA rules on a classical 24-month pipeline transaction for an investments company whose portfolio had performed poorly
CRA ruled on a classical post-mortem pipeline transaction carried out in relation to an Opco with an investments business and whose shares on the death of the individual had an aggregate FMV less than the aggregate redemption value of the outstanding preferred shares (so that the Opco common shares were considered to have a nominal FMV). Under the proposed transactions:
- the estate transfers all its shares of Opco on an s. 85(1) rollover basis to Newco in consideration for a demand note and Class B non-voting, non-cumulative preferred shares of Newco.
- each of the children, who are equal beneficiaries, transfer their preferred shares and common shares of Opco on an s. 85(1) rollover basis to Newco in consideration for Class C non-voting, non-cumulative preferred shares of Newco.
- at least 12 months later, Newco and Opco amalgamate, with the note then being repaid on a quarterly basis over a minimum period of one year, with Amalco then being wound up into the estate.
Neal Armstrong. Summary of 2024 Ruling 2024-1027631R3 F under s. 84(2).
CRA confirms that the retention of Opco’s real estate in the parent’s Realtyco after a sale of Opco to the child’s Holdco does not render Realtyco a relevant group entity
Mr. A wholly owned Opco, whose shares qualified as qualified small business corporation shares (QSBCS), and Holdco, which leased commercial property to Opco for use in its Canadian active business, so that the rents were deemed under s. 129(6) to be active business income. Mr. A disposed of the Opco shares to a holding company of his adult child (the purchaser). If this disposition satisfied the other requirements of s. 84.1(2.31), it nonetheless would not satisfy those rules if Holdco constituted a relevant group entity.
In finding that it was not, CRA indicated that Opco's assets could not be considered to be used in a business of Holdco nor, on the facts, did Opco hold shares or debt of Holdco or a debt payable by Holdco. Therefore, it could not be concluded that the business carried on by Holdco could be relevant in determining whether shares of Opco constituted QSBCS at the disposition time.
The same conclusion was reached more briefly in 2024-1036641E5 F.
Neal Armstrong. Summary of 6 May 2025 External T.I. 2024-1010641E5 F under s. 84.1(2.31)(c)(iii).
Excluded entities have the choice of whether or not to compute their CUEC in years in which it is not being utilized
If the maximum amount that the EIFEL regime permits the taxpayer to deduct for a taxation year is not fully utilized, that amount is added to its cumulative unused excess capacity (CUEC) balance, thereby increasing its capacity to make interest and financing expense deductions in any of the three subsequent taxation years.
Both the CUEC definition in s. 18.2(1) and Schedule 130 contemplate that the CUEC balance can accumulate in years in which it is not used irrespective of whether the form is filed for those year. Furthermore, although s. 18.2(18) states that “each taxpayer" shall file a prescribed form containing prescribed information respecting the deductibility of its IFE, CRA guidelines state that an excluded entity is not required to file unless it is a party to an election under the rules.
Thus, an excluded entity appears to have the choice of filing the prescribed form (Sched. 130) for years when the form is not required by CRA. This creates additional costs, but less of a burden in a subsequent year when the CUEC is needed.
Neal Armstrong. Summary of Simon Townsend and Benjamin Wilson, “Excluded Entities for EIFEL: Should CUEC Balances Be Tracked and Filed?,” Canadian Tax Focus, Vol. 15, No. 3, August 2025, p. 2 under s. 18.2(1) - CUEC.
CRA indicates that there is no need to assess a CRIC whose s. 212.3(7)(d) liability for failure to use its cross-border PUC has been eliminated through a late s. 212.3(7)(d)(i) filing
A corporation resident in Canada (the “CRIC”) was able to offset a dividend deemed to be paid by s. 212.3(2)(a) to its non-resident parent against the paid-up capital of CRIC shares held by its parent -but the form required by s. 212.3(7)(d)(i) to report such offset was not submitted by the CRIC’s filing due date for that year. As a result, s. 212.3(7)(d)(ii) automatically deemed a dividend (the “Reduction Dividend”) to have been paid to the CRIC's non-resident parent on that filing due date, so that on that date, the CRIC was liable under s. 215(1) to pay the Part XIII tax on the Reduction Dividend.
However, the CRIC then late-filed the form. Consequently, s. 227(6.2)(c) deemed the Part XIII tax liability with respect to the Reduction Dividend to have been paid on that late-filing date, thereby eliminating the s. 215(1) remittance obligation.
Regarding whether CRA could or should assess the CRIC under s. 227(10), it indicated that the "amount payable" in s. 227(10) (or under s. 227(10.1)(c)) in respect of any assessment of the non-resident parent) referred not to the unpaid balance, but to the amount of the liability before any payment thereof. Accordingly, the deemed payment under s. 227(6.2)(c) did not eliminate Part XIII tax liability but rather caused that Part XIII tax liability to be settled.
On this basis, the Minister had the discretion to make an assessment at any time under s. 227(10) (or (10.1)) but was not required to do so. Thus, as the Part XIII tax liability had been settled, there was no need to inform the CRIC or the non-resident person of the amount of the liability through an assessment.
Neal Armstrong. Summaries of 4 June 2025 External T.I. 2024-1039701E5 under s. 212.3(7)(d) and s. 227(8.3)(b).
Income Tax Severed Letters 6 August 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Vohra – Tax Court of Canada states that it did not have the power to infer an allocation of a court order for support between child and spousal support
Unless the written agreement or court order under which support payments are made identifies an amount of support as being solely for the support of the recipient, each support payment made under the agreement or order by the parent of a child is deemed to be a child support payment and, therefore, is not deductible to the payer.
Here, a consent order of the Ontario Superior Court provided that the taxpayer was to pay his separated spouse "temporary support in the amount of $8,000 per month" (no subsequent order was made). Spiro J rejected the taxpayer's submission that these terms should be read in the context of the separation agreement which this consent order supplanted, and which had provided that only $2,500 per month of the previous support payments ($6,000 per month) constituted child support, with the balance as spousal support. He stated that he did not have the “power to read words into the Consent Order or to amend it.”
Accordingly, the full $8,000 support amount payable pursuant to the consent order constituted a non-deductible child support amount.
Neal Armstrong. Summary of Vohra v. The King, 2025 TCC 93 under s. 56.1(4) – child support amount.