This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.

Shopify was a Canadian corporation providing a software platform for online e-commerce transactions. After receiving a request from the Australian Tax Office (ATO) for such information pursuant to Article 21 of the Canada-Australia Treaty (the “Convention”) a year previously, the Minister issued a requirement to Shopify pursuant to s. 231.2 of the ITA (and s. 289(3) of the ETA) for information identifying listed particulars for all merchant customers of Shopify who had revenues from sales to customers located in Australia. The Ministers sought judicial authorization of such requests pursuant to the “unnamed persons” provisions of s. 231.2(3) (and s. 289(3) of the ETA).

Régimbald J noted that, although s. 231.2(1) granted the Minister the authority to obtain information or documents regarding named persons for purposes relating to the administration or enforcement of the Act or a “listed international agreement” such as the Convention, in the case of a requirement regarding unnamed persons, s. 231.2(3)(b) instead only referred to the verification of compliance by a person or persons in a group with any obligation under the Act, i.e., there was no mention of any listed international agreement.

This was telling. For instance, it seemed “highly unlikely that Parliament would refer to ‘this Act’ twice within section 231.2 and assign a different meaning to each reference”. Furthermore, a refusal to exchange information on the basis of s. 231.23(b) was consistent with Article 21 of the Convention, which did not impose on the Minister an obligation to carry out measures at variance with Canadian law.

Although it was not necessary for him to do so, Régimbald J went on to consider whether the requirement satisfied the stipulation in s. 231.2(3)(a) that the referenced group be “ascertainable.” In this regard, he stated:

As long as the identities of those within the target group can be readily made exact or determined with sufficient precision by the Court and the third party, the Minister will have met the legislative precondition in paragraph 231.2(3)(a) and identified a sufficiently clear “ascertainable” group. On the evidence adduced, that is the case here.

He further indicated that it would not be appropriate for the Court to exercise its residual discretion in favour of not compelling the disclosure (if disclosure had not already been precluded on the s. 231.2(3)(b) grounds). It did not matter that Shopify Ireland and Shopify Singapore might be in possession and control of some of the requested information, as such information could be accessed in Canada by Shopify itself. Furthermore, if Shopify could not provide a response within the 45 days stipulated in the requirement, the Court retained jurisdiction to extend the time to respond on motion from Shopify.

Thus, the requirement would have been authorized if the amendment to add “listed international agreements” to s. 231.2(3)(b) had been already implemented.

Neal Armstrong. Summary of Canada (National Revenue) v. Shopify Inc., 2025 FC 968 under s. 231.2(3).

A Canadian financial institution made a capital contribution to a “Non-Resident Partnership”) between a general partner and a limited partner, with a resulting credit to its capital account. Could it claim ITCs for its related inputs on the basis that its investment was a zero-rated financial service under ETA s. VI-IX-1?

CRA noted that applying the two-step approach in Folio S4-F16-C1, the Non-Resident Partnership might not be a partnership for Canadian tax purposes, given that the general partner did not have an interest in the “partnership,” and the limited partners and general partner had no obligation for its liabilities. If not a partnership, the consideration received for the investment (the “partnership” interest) might not be a financial instrument, in which case, that investment would be excluded from being the supply of a “financial service” by virtue of the exclusion in para. (n) of the definition thereof. [This possibility seems unlikely. If not a partnership, the consideration received presumably would qualify as a share.]

CRA indicated that the acquisition of the initial investment likely was a zero-rated supply, namely, a payment of money in consideration for the partnership interest, so that the related inputs could potentially qualify for input tax credits (ITCs).

Regarding the subsequent holding of the partnership interest, they would not represent the making of a supply. Furthermore, even if the receipt of monthly partnership distributions constituted the making of a supply (in which case, it would be an exempt supply under para. (f) of the financial services definition), it would not constitute the making of a supply for consideration (i.e., the financial institution would not receive consideration in return for receiving such distributions) so that no related ITC claims could be made. [CRA apparently did not regard the monthly distributions as deferred zero-rated consideration for the investment, even though the entitlement thereto was part of the bundle of rights (the partnership interest) received in consideration for the investment.]

Finally, the making of an additional capital contribution by all partners would not be a taxable supply made for consideration, as no consideration (i.e., partnership interest, further right or enhancement) would be received in return for doing so – so that, again, this could not generate ITCs. [This seems questionable. A partner has a deferred undivided interest in the partnership property and a capital contribution credited to its capital account would increase the quantum of that entitlement.]

Neal Armstrong. Summaries of 30 May 2024 GST/HST Interpretation 246958 under ETA s. VI-IX-1, s. 141.02(1) - non-attributable input, s. 123(1) – financial service - (n), and (f).

Whether the sale by a couple of their shares of a private corporation (CCM) with producing Canadian oil wells and a Canadian financial services business constituted a sale of qualified small business corporation shares (QSBCS) turned on whether their CCM shares satisfied the test in the QSBCS definition of more than 50% of the fair market value (FMV), over the 24 months preceding the disposition, of their shares being attributable to assets used principally in CCM’s active business. Given that CCM had substantial cash holdings, this issue turned on whether at least $710,000 of this cash was so used in the business on the basis of being required by the oil and gas business as a reserve against prospective future well decommissioning costs.

Esri J rejected this proposition on the basis that the evidence indicated that the prospect of decommissioning costs being at this high a level was something quite remote and stated:

[I]t is a foregone conclusion that sooner or later decommissioning costs will become due, but that is not enough. The case law requires a rational connection between the reasonably determined risk and the amount of the reserves. It does not permit an appellant to set aside virtually unlimited amounts of property on the theory that there is a small and remote risk of an unlimited liability at an unspecified future date.

Neal Armstrong. Summary of Ehresman v. The King, 2025 TCC 78 under s. 110.6(1) – QSBCS.