News of Note
The acquisition of First Capital REIT will entail the receipt of close to 40% percent of the total consideration to its unitholders as recapture
Email this ContentIt is proposed that First Capital REIT and its assets be acquired by a KingSett limited partnership and Choice Properties REIT.
Various properties would be sold by REIT subsidiaries (generally LPs or trusts) to Choice purchasers, with the resulting net proceeds distributed to the REIT unitholders.
Prior to the KingSett acquisition, REIT subsidiary properties that were being retained for KingSett would be stepped up by transferring them down to subsidiary LPs. KingSett would then acquire the REIT units for a combination of cash and Choice units (having previously obtained the Choice units by subscribing for them -so that to that extent, Choice in effect will be purchasing its properties for units rather than cash). As has become customary, this REIT unit acquisition would occur in two steps for Ontario LTT reasons.
The transactions, including the making of an election to not have s. 251.2(6) apply to the timing of the loss restriction event resulting from the issuance of REIT units to Choice, and timely winding-up of underlying LPs, would be designed to ensure that all the resulting gains, both recapture of depreciation and taxable capital gains, would be distributed and allocated to the REIT unitholders.
REIT management anticipates that the ordinary income distributed to the REIT unitholders will amount to between $8 and $9 per REIT unit. Unitholders are advised to consider selling their shares on the TSX with a record date prior to the effective date of the Arrangement.
Neal Armstrong. Summary of Information Circular of First Capital Real Estate Investment Trust (the "REIT") in respect of its sale of assets to Choice Properties Real Estate Investment Trust ("Choice") and acquisition by Premier Acquisition LP (the "Purchaser") under Mergers & Acquisitions - REIT Acquisitions – LP Acquisitions of Trusts.
CRA indicates that a deemed trust that is only required to file a T3 return by Reg. 204 and not by ITA ss. 150(1)(c) and 150(1.1)(b) is not required to file a Sched. 15
Where a deemed trust (here, a trust deemed to be created pursuant to s. 143(1), e.g., re the business of a Hutterite colony) is not required to file a T3 Return for a taxation year by virtue of s. 150(1)(c), but is required to do so pursuant to Reg. 204 (e.g., it receives income in the year exceeding $500 but has no tax payable for the year or dispositions in the year), it will not be required to complete Sched. 15 for the year. However, where the deemed trust is required to file a T3 Return pursuant to s. 150(1)(c), Reg. 204.2(1) will apply to the trust such that it will be required to include Sched. 15 with its T3 Return for the year, unless it is one of the excluded trusts listed in ss. 150(1.2)(a) to (r).
This constitutes an extension of 2025-1080801C6, which most relevantly merely recognized the proposition in the sentence immediately above.
Neal Armstrong. Summaries of 27 November 2025 Internal T.I. 2025-1072771I7 under Reg. 204.2(1) and s. 143(1).
Mecteau – Court of Quebec finds that Monsieur, who worked full-time in Alberta for 17 years, but had a home with “amie” in Quebec, was a Quebec resident
Lavigne JCQ confirmed the assessments made by the ARQ of the taxpayer on the basis that, while working full-time in the Fort McMurray area of Alberta for his 2005 to 2018 taxation years, he resided in Quebec rather than Alberta. While working there, he rented a room at a friend's place along with other visitors but maintained a residence in Bécancour, where his friend [“amie”] stayed. An ARQ analysis of his phone and bank statements indicated that he spent substantial time there. He retired in 2022 and “returned” to Quebec.
In reaching the above conclusion, Lavigne JCQ stated:
… Mr. Mecteau's presence in Quebec was regular, sustained, and recurrent, as he stayed there whenever he was not at work. Conversely, his ties to Alberta were essentially limited to his employment. His absences from Quebec were solely due to his professional obligations and, consequently, were of a temporary nature.
Furthermore, Mr. Mecteau had at all times maintained the intention of returning to live in Quebec and had preserved significant ties there with a friend he referred to as his roommate, with whom he still cohabits.
Neal Armstrong. Summary of Mecteau v. Agence du revenu du Québec, 2026 QCCQ 2466 under s. 2(1).
CRA finds that the s. 74.4(2)(e) deduction for interest/ dividends received applied where an individual made a B2B loan or pref investment via his corp to his wife’s corp
Mr. A lent $100,000 at 6% interest, paid annually, to his wholly owned corporation (Holdco A) which, in turn, lent those funds at the same interest rate and payment basis to a corporation (Opco B) wholly owned by his spouse (Ms. B). Under a variant of this scenario, the $100,000 was advanced by Mr. A to Holdco A and, in turn, by Holdco A to Opco B, as the subscription proceeds for non-voting preferred shares bearing a 6% non-cumulative dividend, paid annually, rather than as loans.
After noting that these transactions entailed an indirect loan or transfer made by Mr. A to Opco B so as to require the inclusion of imputed interest to Mr. A under s. 74.4(2)(b), CRA went on to state:
[I]t would be reasonable to regard the return received by Mr. A from Holdco A as coming within subparagraphs 74.4(2)(e) and (f), insofar as it would be reasonable to consider that it is derived indirectly from the loan or transfer made by Holdco A to Opco B. This would be the case where Opco B pays a 6% return to Holdco A and Holdco A pays a 6% return to Mr. A, in respect of each of the transactions constituting the indirect loan or transfer.
In other words, there would be no net inclusion to Mr. A under s. 74.4(2) assuming that the prescribed rate did not exceed 6%.
In a further scenario, Opco B used funds derived from its operating retained earnings to make a non-interest-bearing loan to Holdco A. CRA stated:
Our Directorate’s long-standing position is not to apply section 74.4 to a transfer or loan made by one corporation to another, out of the equity of the former, unless it can be shown that an individual has, indirectly, through a trust or otherwise, transferred or loaned property to the corporation, or that [the B2B rule in] subsection 74.5(6) applies.
Neal Armstrong. Summaries of 2 April 2026 External T.I. 2025-1085691E5 F under s. 74.4(2) and s. 74.4(2)(e).
Cabinet M - Court of Quebec infers that a payment made by the taxpayer to his corporation was made as an advance, so that s. 160 did not apply
In August and September 2016, the taxpayer transferred $35,000 from his bank account to that of his corporation. On September 30, 2016, $75,000 was transferred from the corporate account to his personal account.
Messier JCQ found that an obligation of the corporation to repay the $35,000 advance arose from the moment it was made. Therefore, it should not be considered that, for purposes of the Quebec equivalent of s. 160, the taxpayer had made the $35,000 payment to his corporation for no consideration, so that that provision did not apply.
Neal Armstrong. Summary of Cabinet M Inc. v. Agence du revenu du Québec, 2026 QCCQ 2159 under s. 160(1).
BlueCrest Capital – UK Supreme Court confirms that a salaried partner can be a partner unless deemed to be an employee
The UK salaried members legislation provided that a member of an LLP was to be treated as an employee of the LLP for income tax and national insurance contribution purposes if any one of the following three conditions was satisfied:
- Condition A: The member's remuneration from the LLP was fixed, variable but without reference to the profits or losses of the partnership, or not in practice affected by the overall amount of those profits or losses.
- Condition B: The member did not have significant influence over the affairs of the LLP .
- Condition C: Regarding capital contributions to the LLP (which was not at issue in this case.)
Lord Richards and Lady Simler held that the investment manager members of an investment management services LLP, who were not members of the executive committee, satisfied Condition A because most of their remuneration was disguised salary, i.e., they were paid by reference “to the profits generated by themselves or by their team” rather than “the profits of the firm as a whole” ; and also did not satisfy Condition B given inter alia that this Condition “looks to whether a member has influence by virtue of rights to participate in important decisions concerning the partnership and its business viewed as a whole”, as contrasted to “day to day management or operational management of only a part of the business”.
Before so finding, they discussed the common law distinction between being a partner and an employee and noted that, in Stekel v Ellice [1973] 1 WLR 191, a salaried partner who did not provide capital was nonetheless found to be a partner, given that he had the right to participate in important decisions about the firm's affairs.
They went on to state:
It is readily apparent that the test set by the legislation (in Conditions A, B and C) broadly encapsulates three elements of the common law test for traditional partnership status. …
… [H]aving regard to the purpose of Condition B and the common law test from which it derives, we consider that the requirement that the member has influence over the affairs of the LLP does suggest having "a voice in the management of the affairs of the LLP" … . It follows that the influence is likely to lie in rights to participate in high level or strategic decision making about the partnership's affairs or at any rate, an ability to influence such decisions. …
It is clear that Condition A is, in general terms, designed to reflect one of the principal characteristics of a traditional partnership, that the profits and losses of the partnership are shared between the partners.
Neal Armstrong. Summary of Commissioners for His Majesty's Revenue and Customs v BlueCrest Capital Management (UK) LLP [2026] UKSC 18 under s. 96.
We have translated 5 more CRA interpretations
We have translated a further 5 CRA interpretations released in April of 1999. Their descriptors and links appear below.
These are additions to our set of 3,605 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).
Income Tax Severed Letters 8 July 2026
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Robinson – Federal Court finds that the 3-year Canada-UK MAP limitation period started when CRA incorrectly reassessed a UK citizen as a Canadian resident, not on the later UK assessment
The applicant was a Canadian and UK citizen who had previously filed income tax returns as a resident of Canada for the 2000 to 2015 taxation years. Following a CRA audit, it concluded that he owed taxes on his worldwide income as a resident of Canada, and found that he had provided insufficient support for his submission that he had been a UK resident rather than a Canadian resident. Accordingly, on September 7, 2017, it issued notices of reassessment for his 2006 to 2010 and 2014 taxation years for the unreported foreign income.
The taxpayer then proceeded to make a disclosure in 2019 to HMRC on the basis that he had been a resident of the UK from April 6, 2002 until April 5, 2017. On March 8 2021, HMRC assessed the taxpayer for his 2000/2001 and 2001/2002 taxation years based on those disclosures.
On January 25, 2022, the applicant submitted a request to the Canadian competent authority to initiate the mutual agreement procedure (MAP) pursuant to Art. 23 of the Canada-UK Convention (similar to Art. 25 of the OECD Model Convention) to address him being taxed as a resident of both countries. Art. 23 contained a limitation period, namely, that the application to initiate the MAP “must be submitted within three years from the first notification of the action resulting in taxation not in accordance with the provisions of the Convention.”
CRA concluded that the applicant's MAP request was filed outside this limitation period. In particular, it now agreed with the applicant that he had not been a resident of Canada and that the 2017 CRA reassessments were incorrect – so that those reassessments constituted an action not in accordance with the Convention – and, as the first such action, started the limitation period running.
In finding that this CRA decision was reasonable, Ngo J. stated:
In the Applicant’s case, he had clearly expressed to the Canadian tax authority that he should be considered a UK resident for taxation purposes. The result of the 2017 CRA Reassessment was the CRA charging tax to the Applicant. He then asserted, that when Canada imposed tax on him, this was taxation not in accordance with the Convention by Canada because of his UK residency claim. It was therefore reasonable for the CRA to conclude that the 2017 CRA Reassessment was an “action”, with the direct and necessary consequence of the charging of tax against the complainant contrary to the provisions of the Convention … .
Neal Armstrong. Summary of Robinson v. Canada (Attorney General), 2026 FC 854 under Treaties – Income Tax Conventions – Art. 26.
Maurice – Court of Quebec finds that fees paid to firms structuring flow-through share deals for clients constituted “commissions” so that there were no s. 20(1)(bb) deductions
The taxpayer (“Maurice”), who was an investment advisor at a wealth management division of a brokerage, was charged fees by two specialist firms (Oberon and WCPD) that were equal to a percentage ranging between 8% and 11% of the dollar value of the flow-through shares that Maurice purchased for his clients through these firms for immediate resale or donation. Their services included sourcing the flow-through shares, conducting due diligence on the issuers, structuring the transactions to produce tax benefits for the clients and negotiating terms.
Chalifour JCQ found that such fees constituted “commissions” and, as such, did not qualify for deduction under TA 157(d) (similar to ITA 20(1)(bb)), stating:
An analysis of case law reveals that the term "commission" is generally understood in its ordinary sense, that is, as variable percentage-based remuneration. …
She further found that “planning aimed at maximizing a tax benefit arising from the flow-through share market” did not come within the services described in s. 157(d), and that Maurice had not established what portion of the fees paid by him so qualified.
Neal Armstrong. Summary of Maurice v. Agence du revenu du Québec, 2026 QCCQ 2205 under s. 20(1)(bb).
Neal H. Armstrong editor and contributor