News of Note
CRA indicates that on the partial repayment of USD debt with forgiveness of the balance, the s. 39(2) gain or loss is computed on a net basis.
Email this ContentHow is a gain or loss under s. 39(2) computed where a foreign currency-denominated debt is partly repaid, with the remaining principal amount being forgiven?
For instance, a taxpayer borrows U.S.$1,000,000. On maturity, U.S.$300,000 of the principal amount is repaid, and the balance is forgiven. On the issuance date, the spot rate is U.S.$1.00 equals Cdn. $1.25; and on the maturity date, U.S.$1.00 equals either Cdn.$1.50, or Cdn.$1.00.
CRA noted that Agnico-Eagle computed the s. 39(2) gain or loss on the repayment of a debt issued at its FX face amount by comparing A – B, where:
- A is the issuance (i.e., borrowing) amount, and
- B is the repayment amount,
with the amounts borrowed and repaid in foreign currency being converted to Cdn. dollars using the respective spot rates on the two dates.
CRA also noted its historical position that no foreign exchange gain or loss arises in the context of a debt forgiveness because there is no transaction that would result in realizing such a gain or loss.
CRA then indicated that in the situation where a foreign exchange indebtedness is partially repaid and partially forgiven, s. 39(2) and s. 80 each apply to their respective portions of the indebtedness. Accordingly, in the above example, the formula is adjusted by reducing A by the forgiven amount of U.S.$700,000. Thus, in the first scenario, there is a capital gain under s. 39(2) of $75,000 (1.25*$300,000 – $300,000); and in the second scenario, there is a loss of $75,000 (1.25*$300,000 – 1.5*$300,000).
The above formula would have to be further adjusted, for example, where the debt was issued at a discount or premium.
Neal Armstrong. Summary of 13 May 2026 IFA Roundtable, Q.5 under s. 39(2).
Income Tax Severed Letters 20 May 2026
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
When issuing a s. 116 certificate, CRA will not require s. 116 withholding on the portion of redemption proceeds generating a deemed s. 84(3) dividend
A corporation resident in Canada redeems shares held by a non-resident, resulting in a deemed dividend under s. 84(3) and the application of the s. 116 rules.
CRA noted that there is no carve-out for a deemed dividend (such as that found in s. 54 - “proceeds of disposition” – (j)) from the application of the s. 116 rules to the total redemption proceeds. Thus, there would be a required remittance under s. 116(5) of 25% of the total redemption proceeds notwithstanding that the deemed dividend portion was also subject to Part XIII withholding.
However, there is an existing CRA position in respect of deemed dividends that arise under s. 212.1. According to this position, the amount of the required remittance under s. 116 where a certificate is issued will not apply to the base on which the s. 212.1 Part XIII remittance was computed, i.e., it will not apply to the deemed dividend portion of the proceeds. This position, which was previously applicable to s. 212.1, will now be extended, and IC72-17R6 will be amended accordingly.
That said, until such time as a s. 116 certificate is issued, the required remittance under s. 116(5) will remain at 25% of the cost to the purchasing corporation, including the deemed dividend portion. As a result, there will be a double remittance until the s. 116 certificate is granted.
Neal Armstrong. Summary of 13 May 2026 IFA Roundtable, Q.4 under s. 116(5).
CRA no longer considers that s. 116(5) could apply to a s. 51(1) exchange
IC72-17R6, para. 40 states that although ss. 116(1) and (3) do not apply to a s. 51(1) exchange of shares of a corporation because there is no “disposition” of the shares, there nonetheless is an “acquisition” of shares by the corporation, so that s. 116(5) may apply if the shares are taxable Canadian property (“TCP”).
After agreeing that ss. 116(1) to (4) do not apply because there is no disposition, CRA went on to indicate that the purchaser referred to in s. 116(5) is someone to whom property is disposed of. Therefore, where s. 51(1) applies, there is no purchaser because there is no disposition.
On this basis, CRA has changed its position and concluded that no remittance is required pursuant to s. 116(5) on a s. 51(1) exchange. The previous position in IC72-17R6, para. 40, will be amended accordingly.
Neal Armstrong. Summary of 13 May 2026 IFA Roundtable, Q.3 under s. 116(5).
We have translated 5 more CRA interpretations
We have translated a further 5 CRA interpretations released in May of 1999. Their descriptors and links appear below.
These are additions to our set of 3,568 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 crypto is not “goods” for s. 95(3)(b) purposes
A foreign affiliate of Canco provided investment management and trading execution services to Canco in relation to Canco’s Canadian cryptocurrency trading business.
Does the exception in s. 95(3)(b) from the application of s. 95(2)(b) for “services performed in connection with the purchase or sale of goods” apply in relation to cryptocurrencies? After referring inter alia to Canadian Wirevision, which essentially found that “goods” referred to “tangible movable property” and to the anti-base erosion objective of the s. 95(2)(b) rules, which would be satisfied where the services, by their nature, were required to be performed outside of Canada, but not here where such services could be performed in Canada, CRA concluded that cryptocurrency, being intangible property, was not “goods.”
Neal Armstrong. Summary of 13 May 2026 IFA Roundtable, Q.2 under s. 95(3)(b).
CRA indicates that s. 84(2) generally does not apply to a payment made by Amalco to a shareholder dissenting to the amalgamation
A shareholder dissents to an amalgamation and receives a payment from the amalgamated corporation for the fair value of its shares. Would s. 84(3) apply?
After noting its longstanding position that s. 84(3) would not apply to a payment made to a shareholder dissenting to an amalgamation by the amalgamated corporation, so that capital gains treatment would apply, CRA went on to indicate that it would not generally view such payments as falling under s. 84(2).
However, if it determined that applying s. 84(2) was necessary to give effect to the provision’s underlying anti-avoidance purpose, then it may be invoked.
Neal Armstrong. Summary of 13 May 2026 IFA Roundtable, Q.1 under s. 84(2).
CRA postpones the implementation of its new GST/HST policy on trailing commissions
In 22 December 2025 GST/HST Interpretation 246664, CRA rejected a submission that GST/HST did not apply to dealer trailing commissions earned by a dealer (the “New Dealer”) who is not the dealer (the “Original Dealer”) who arranged the sale and issuance of the subject mutual fund trust units or shares, and concluded:
Effective July 1, 2026, mutual fund trailing commissions paid by [mutual fund] Managers to both Original Dealers and New Dealers will generally be subject to GST/HST.
However, on May 13, 2026, the CRA verbally informed various industry groups that it intends to grant a material extension to the implementation deadline for this new policy; and that it will provide further details regarding the enforcement of its administrative position in a notice to be published by the end of the month.
Neal Armstrong. Summary of EY Tax Alert – Canada, “CRA intends to postpone new administrative position on GST/HST treatment of trailing commissions,” 2026, Issue No. 30, 14 May 2026 under ETA s. 123(1) – asset management service.
CRA generally will only make a single penalty assessment for a trust filing failure for a year described in s. 163(5)
Regarding whether more than one person may be assessed a penalty under s. 163 regarding a failure to file (or respond to a demand to file) a T3 return for a taxation year or regarding the making of a related false statement or omission, CRA generally concluded:
While more than one person or partnership may, in principle, meet the statutory conditions for liability to the Penalty under subs. 163(5), our view remains that a single assessment to the trust would reasonably be sufficient and appropriate to carry out the legislative scheme of the Act and enforce compliance, barring egregious or independent fault by others.
However, it noted that if more than one person or partnership was responsible for making relevant false statements, “there would be the potential for more than one person or partnership to be liable for the penalty under s. 163(5)(a)(i).”
It further indicated that since ss. 163(5) and (6) “are arguably more specific” than ss. 162(1), (2), and (7), and 163(2), the s. 163(5) penalty “should take precedence over penalties in those less specific provisions.”
Neal Armstrong. Summary of 7 January 2026 Internal T.I. 2024-1007421I7 under s. 163(5).
The site is back up (and here is a thumbnail IFA Roundtable summary)
The site has been restored to its snapshot from 3 AM on the Wednesday the 13th. All changes to the site since then have been deleted, including any changes to your user account, subscription, or password. Use the contact form if you have an issue related to the data loss, and thank you for your patience while we take care of any outstanding details arising from the data loss.
Since our previous post announcing the publication of the 2026 IFA Roundtable now contains a broken link, this updated post provides a fresh link. Here is a brief summary of IFA highlights (with more detailed posts to follow next week):
- Q1: S. 84(2) generally does not apply to a payment made by an amalgamated corporation to a dissenting shareholder.
- Q2: Crypto is not “goods" for the purposes of the s. 95(3)(b) exception.
- Q3: No remittance under s. 116(5) is required for an s. 51(1) exchange.
- Q4: When a s. 116 certificate is issued for a share redemption, any remittance requirement under s. 116 will not be calculated on the portion of the redemption proceeds that is deemed to be a dividend (this, like Q.3, is a revised position).
- Q5: On the partial repayment of USD debt with forgiveness of the balance, the s. 39(2) gain or loss is computed on a net basis.
- Q6: CRA appears generally open to allowing a Canadian corporation to claim a s. 126(1) FTC on a distribution from a U.S. subsidiary that produces a capital gain for Canadian purposes, but is a dividend subject to 5% withholding tax for U.S. purposes, provided there is no double deduction/credit involved.
- Q7: CRA also applies a facts-based approach to determining in which Canadian taxation year an FTC can be claimed when there is a mismatch between the taxation years of Canco and of the applicable FA on whose shares US FIRPTA tax was paid.
Neal Armstrong. 13 May 2026 IFA Roundtable.
Neal H. Armstrong editor and contributor