News of Note
CRA finds that a person can be a resident contributor based on deemed contributions made to a non-resident trust before 2007
Email this ContentCRA found that the post-2006 version of the s. 94 rules applied where a factually non-resident trust or its wholly owned subsidiary subscribed for shares of a resident corporation prior to 2007 with no election being made for an earlier application date. In this regard, CRA noted that the definition of "contributor" contemplated testing that status based on contributions made to a trust at any time before the testing time. Thus, the pre-2007 contribution would be by a “contributor” to the trust (unless an exempt person) - and such contributor, if also resident in Canada at the testing time, would generally be a "resident contributor" to the trust.
Furthermore, the deemed contribution rules in s. 94(2)(a) or (g), which reference their application “at any time” could also be triggered on the basis of deemed contributions occurring before the trust's 2007 taxation year.
CRA also confirmed that, by virtue of s. 4.3 of the Income Tax Conventions Interpretation Act, a trust which is deemed to be resident in Canada pursuant to s. 94(3) will be a resident of Canada and only of Canada for treaty purposes.
Neal Armstrong. Summaries of 24 March 2026 External T.I. 2025-1061181E5 under s. 94(1) - contributor and Income Tax Conventions Interpretation Act, s. 4.3.
CRA finds that the s. 37(1)(a)(i.01) deduction was not available to a company that did not control the research and had no right to the results
S. 37(1)(a)(i.01) provides a deduction for current SR&ED carried on in Canada that is related to the business of the taxpayer and that is directly undertaken “on behalf of” the taxpayer. CRA stated:
“[O]n behalf of” refers to a situation where SR&ED is contracted out by the taxpayer to another party (“the Performer”), the taxpayer exercises some direction or control or some other involvement in the SR&ED undertaken by the Performer and the taxpayer acquires or maintains rights to use the results of the SR&ED.
Accordingly, s. 37(1)(a)(i.01) was not available where the claimant administered an SR&ED program conducted for a pharmaceutical company at hospitals and universities but had no control over the research or right to use the results.
Neal Armstrong. Summary of 13 April 2026 Internal T.I. 2025-1082711I7 under s. 37(1)(a)(i.01).
CRA finds that a partner does not have the discretion to not recognize a partnership loss allocated to it
CRA found that a partner was required to include in computing its income the amount allocated to it by the partnership as a loss from its business (presumably reflecting the deduction by the partnership of discretionary deductions), rather than the partner having the discretion to not include that loss in computing its income under s. 3. CRA stated:
[C]laiming a deduction in computing a loss from a source and including the loss itself from a particular source in the computation of net income for the year are two distinct concepts. The fact that one (i.e. claiming a deduction) may be discretionary does not lead to the conclusion that the other (i.e. including a loss) is also discretionary.
Where taxpayers have discretion in respect of the utilization of a loss, it is expressly provided for under the relevant provisions of the Act, such as subsection 111(1) … . Such discretion is not provided for in respect of current-year losses under paragraph 3(d) … .
Neal Armstrong. Summary of 20 March 2026 Internal T.I. 2025-1061521I7 under s. 96(1)(g).
Income Tax Severed Letters 27 May 2026
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Fadali – Tax Court of Canada finds that the s. 296(2.1) requirement on CRA to apply available rebates when assessing HST reduced a late-filing penalty
Derksen J. found that the taxpayer was not entitled to claim ITCs respecting his construction expenses of a new home that he had sold in December 2020 because they were incurred while he was not yet a registrant. However, he could (and, in fact, at a subsequent juncture, did) claim a rebate under s. 257 for the same expenses.
Derksen J. further found that if the taxpayer had filed a rebate application under s. 257 at the time he was assessed in June 2021 to deny those ITCs, he would have been entitled to it. Accordingly, s. 296(2.1) required the CRA to take such a rebate amount into account when assessing the taxpayer before the rebate application had in fact been made. Consequently, having regard to the similar issue in Villa Ste-Rose, the quantum of the late filing penalty assessed against the taxpayer under s. 280.1 (for filing his December 2020 return over a year late) should be reduced accordingly.
Neal Armstrong. Summary of Fadali v. The King, 2026 TCC 86 under ETA s. 123(1) – builder – (f) and s. 296(2.1).
CRA extends the effective date for the taxability of trailing commissions
In its 10 February 2026 version of GST/HST Notice 344 CRA confirm earlier comments made in 22 December 2025 GST/HST Interpretation 246664 that “[a]s a result of … industry developments” it “will enforce the application of the GST/HST to supplies made by dealers on or after July 1, 2026, in exchange for trailing commissions.” In a revised version of the Notice issued on 26 May 2026, CRA changed the effective date, by stating:
The CRA will enforce the application of the GST/HST to:
- these supplies made by dealers on or after January 1, 2028
- any such supplies made before that date where the dealer has treated the supplies as taxable by claiming input tax credits (ITCs) on business inputs attributed to those supplies, with such enforcement applying from the first such supply to which inputs were attributed and related ITCs claimed
The comments in the revised Notice effectively acknowledge that this change will reduce net CRA collections since the mutual fund managers will claim ITCs for the GST/HST charged on the trailing commissions, and their taxability will now generate ITCs to the dealers.
Neal Armstrong. Summary of GST/HST Notice 344, Application of the GST/HST to Mutual Fund Trailing Commissions, 26 May 2026 under s. 123(1) – financial service – (l).
CRA confirms that a capital distribution by an estate to a non-resident beneficiary is deemed to be of “income,” and must be reported on an NR4
CRA confirmed that a capital distribution that was not derived from a capital dividend, paid by a resident estate to non-resident beneficiaries, would not be subject to Part XIII tax - notwithstanding that s. 212(11) deemed such capital distribution to be a payment of income for purposes of s. 212(1)(c) - given that it was not specifically described in s. 212(1)(c)(i) or (ii).
However, because s. 212(11) deemed the distribution to be a distribution of income, the estate was required to report it on an NR4 form (but should note its exempt status by using the exemption code, “S”).
Neal Armstrong. Summaries of 12 June 2023 External T.I. 2022-0956461E5 under s. 212(1)(c) and Reg. 202(1)(b).
We have translated 6 more CRA interpretations
We have translated a further CRA interpretation released last week and 5 CRA interpretations released in May and April of 1999. Their descriptors and links appear below.
These are additions to our set of 3,574 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 27 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA finds that fees paid to a landowner to access a CCUS construction site were not part of the capital cost of the resulting Class 57 property
The taxpayer, which proposed to construct a qualifying CCUS project in Canada, agreed with the landowner, whose land was required to access the project site, to pay fees for the right to access that land during project construction, and to thereafter restore the land to its original condition.
CRA indicated that the access fees appeared to be an expenditure incurred in connection with a separate asset of a capital nature and, accordingly, would not be included in the cost of the prospective Class 57 asset. There was insufficient information to determine the particular depreciable class for such separate property.
The fees incurred to restore the property arguably should receive the same treatment, i.e., as an addition to such separate class of depreciable property. Otherwise, it would have to be determined whether their current deduction was denied by s. 18(1).
Neal Armstrong. Summary of 25 November 2025 External T.I. 2025-1049831E5 under s. 127.44(1) – qualified CCUS expenditure, s. 13(21) – UCC – A.
CRA elaborates on types of residential-use property that are excluded property
The specified leasing property rules may restrict CCA claims of a lessor so that there is no tax benefit to it from having leased the equipment rather than making a secured loan. Excluded properties, which are excluded from the rule's ambit, includes in Regulation 1100(1.13)(a)(ii), "furniture, appliances, television receivers, radio receivers, telephones, furnaces, hot water heaters, and other similar properties designed for residential use."
CRA confirmed that the following items could be excluded property pursuant to Reg. 1100(1.13)(a)(ii) if the other conditions were satisfied: heat pumps (wall-mounted and central), air conditioners (wall-mounted and central), furnaces, boilers, as well as equipment and accessories such as electric baseboard heaters and convectors, hot-water heaters, humidifiers, generators, electrical panels and outlets.
It considered that boilers, water heaters, and furnaces were expressly covered by the Regulation’s “furnaces” and “hot-water heaters” language. The other listed items, “given their nature, the context provided and the fact that they are intended for residential use,” came within the phrase "and other similar properties."
Neal Armstrong. Summary of 4 February 2026 External T.I. 2025-1083931E5 F under Reg. 1100(1.13)(a)(ii).
Neal H. Armstrong editor and contributor