CRA noted that a deemed disposition and reacquisition under the change-of-use rules in s. 45 apply only for purposes of the capital gains rules in subdivision c of Division B, and not for purposes of the flipped property rules in s. 12, so that the flipped property rules would not be engaged by virtue only of a housing unit having had such a change of use within 365 days of its sale.

Neal Armstrong. Summary of 10 October 2024 APFF Financial Strategies & Instruments Roundtable, Q.4 under s. 12(13).

Regarding when an average exchange rate could be used In the case of foreign-currency denominated stripped coupon, for which interest is deemed to accrue pursuant to ss. 12(3), (4) and (9), CRA indicated that, given the steady and day-to-day accrual of the interest amounts to be translated, the first two of its four conditions for an average exchange rate would be satisfied, namely, that the foreign currency amounts “are relatively stable and evenly distributed” and “are sufficiently frequent and spread out” to avoid distortion. Regarding satisfaction of the third condition (“the relevant exchange rate does not fluctuate significantly over the period”), that would require an assessment of the impact of the exchange rate differences on the amount to be converted.

Regarding the fourth condition (“the average rate is the rate used by the taxpayer each time these conditions are met”), CRA noted that, in this context, this meant that the average rate should be used whenever the third condition was satisfied.

Neal Armstrong. Summary of 10 October 2024 APFF Financial Strategies & Instruments Roundtable, Q.2 under s. 261(2)(b).

A Calgary shopping mall was sold by Harvard Properties and the other co-owners to a third party (“Abacus”) in a share sale transaction but at a price representative the mall’s asset value and, thus, at a premium to its share-sale value. This was accomplished by transferring their co-ownership interests on a s. 85(1) rollover basis to respective Newcos (“HP Newco”, in the case of Harvard Properties) in consideration inter alia for voting and non-voting shares, followed by a sale of those voting shares to an Abacus subsidiary (NH Properties) for promissory notes for under half of the sale price. The Newcos then sold the shopping centre to a third party (Bentall), and the co-owners then sold their Newco non-voting shares to NH Properties for the balance of the purchase price (receiving, by direction, the Bentall sales proceeds), at no gain due to an ACB step-up pursuant to a stated capital increase coming out of the newly-created capital dividend accounts of the Newcos. Real estate counsel for the vendors negotiated for these transactions to all occur in one integrated interdependent closing.

Boyle J referred to the finding in Microbjo that the purpose of the arm’s length test is to render assurances that the terms reflect ordinary commercial dealings, and that there was not such assurance here, as the vendors were wilfully blind to the source of their premium and the Abacus transaction profit being a tax liability on the Newcos’ sale to Bentall “that would not be paid”. Boyle J found that the vendors and NH Properties were not dealing with each other at arm’s length on the basis both of this absence of “ordinary commercial dealings” and that the parties “clearly acted together to dictate [the] Newcos’ actions from their inception and throughout the closing of this series of transactions”.

In finding that the cash proceeds received by Harvard Properties exceeded the FMV of the Newco shares sold by it (the first element of its s. 160 assessment), Boyle J stated:

There appears to be little to no chance that any arm’s length party unrelated to these transactions would agree to accept, much less pay for, the HP Newco shares at the relevant time as the Newcos would moments in time later have no assets, no business, and the possibility of a significant liability for their roles in these transactions … .

Accordingly, s. 160 applied to the transactions in the cash amounts referenced by him, subject to a determination in still-pending proceedings as to the quantum of any unpaid tax liability of NH Properties.

Boyle J found, in the alternative, that if the series of transactions had avoided the application of s. 160, there was an abusive avoidance of s. 160 through the structuring of a supposed arm’s-length through a sale of the voting shares of the Harvard Properties’ Newco (HP Newco) before the asset sale, capital dividend and sale of the non-voting Newco shares. Furthermore, he considered that the reasonable way in the circumstances to deny the tax benefit was to treat s. 160 as applying to the extent of the shortfall in consideration given on the transfer.

Harvard Properties had been assessed under s. 160 beyond the normal reassessment period, as permitted by s. 160(2). In rejecting the taxpayer’s submission that the assessment of it in the alternative under s. 245(2) was statute-barred because it was made beyond the normal reassessment period, Boyle J stated:

[T]here is no “normal reassessment period” applicable to the application of the GAAR … . The only requirement is that GAAR be involved or taken into account in a timely and otherwise validly issued assessment under the Act.

Neal Armstrong. Summaries of Harvard Properties Inc. v. The King, 2024 TCC 139 under s. 160(1), s. 251(1)(c), s. 245(4), s. 245(2) and General Concepts – FMV - shares.

On October 29, 2024, CRA updated its webpage on bare trust reporting to state:

Updated 2024 Tax year: As announced in the Tax Tip issued October 29, 2024, the Canada Revenue Agency (CRA) will not require bare trusts to file a T3 Income Tax and Information Return (T3 return), including Schedule 15 (Beneficial Ownership Information of a Trust) for the 2024 tax year, unless the CRA makes a direct request for these filings. This is a continuation of the exemption from the trust reporting requirements that was issued for bare trusts for the 2023 tax year.

Neal Armstrong. Summary of CRA Webpage, New reporting requirements for trusts and bare trusts: T3 returns filed for tax years ending after December 30, 2023, updated on 29 October 2024 under s. 150(1.2).