News of Note
CRA notes that a supplementary disability plan for the company’s majority shareholder and another executive might not qualify as a s. 6(1)(a)(i) group plan
Email this ContentA corporation, which already provided a group health and disability plan to all its employees, created a supplementary disability insurance plan for two of its executive employees, one of whom was the majority shareholder.
CRA indicated that if there was “a higher level of benefits for the employee who is the majority shareholder compared to the level of benefits for the other employee in the group, such a policy would probably not be considered a component of a group insurance plan, but rather an individual disability insurance policy.” Accordingly, even if the executives received their benefit from the employer payment of the premiums qua employee rather than shareholder, the exemption pursuant to s. 6(1)(a)(i) from the taxability of that benefit under s. 6(1)(a) would not be available to the executives.
Neal Armstrong. Summaries of 19 February 2025 External T.I. 2018-0744821E5 F under s. 6(1)(a)(i) and s. 15(1).
GST/HST Severed Letters December 2024-February 2025
This morning's release of nine severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their December 2024, January 2025, and February 2025 releases) is now available for your viewing.
CRA indicates that an Arizona limited partnership is a partnership rather than a corporation for ITA purposes
Two Arizona limited partnerships holding rental properties were to be treated as partnerships rather than corporations under the two-step approach of CRA to entity classification. Although they had separate legal personality, that by itself did not preclude them from being classified as partnerships. On the other hand, they had various attributes of common law partnerships including importantly, that the general partner had unlimited liability.
Neal Armstrong. Summary of 28 November 2024 Internal T.I. 2024-1014251I7 under s. 96.
CRA indicates that it might address the consequences of a sale of IP by a partnership for the benefit of a university and its researchers
A university transferred the intellectual property developed for it by its researchers in the course of their employment to a limited partnership of the university, but agreed that they would receive 50% of the resulting net income from the commercialization of the IP. When asked about the tax treatment of a lump sum received on a sale by the partnership of IP and shared with the researchers, CRA indicated that this was a question of fact that might be addressed in a request for a ruling, but not for a technical interpretation.
Neal Armstrong. Summary of 11 March 2025 External T.I. 2020-0845931E5 F under s. 9 – capital gain v. profit – patents.
Income Tax Severed Letters 2 April 2024
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
MEGLobal – Tax Court of Canada effectively finds that a taxpayer had no remedy for a refusal of CRA to accept a requested s. 247(10) downward adjustment
In objections of the taxpayer to reassessments of three of its taxation years to reflect upward transfer pricing adjustments under s. 247(2), it included requested downward adjustments pursuant to s. 247(10). The Minister then vacated the reassessments, but with the requested downward adjustments being refused. The taxpayer filed this appeal to the Tax Court from such further reassessments, and also timely filed in the Federal Court for judicial review of such refusal. However, before MacPhee J the taxpayer effectively indicated that its Federal Court action was futile, i.e. if, in response to an order of the Federal Court, the Minister determined that a downward adjustment was appropriate under s. 247(10), the Minister would not be able to reassess the taxpayer for the years under appeal to the Tax Court if that appeal was quashed.
MacPhee J followed Dow Chemical in finding (at para. 15) that the “Tax Court has no jurisdiction to interfere in any way with the Minister’s discretion in disallowing a downward adjustment”. He also indicated that he lacked jurisdiction (having regard to the scope of s. 171(1)(b)(iii)) to even provide an opinion that the requested downward adjustment accorded with a proper s. 247(2) analysis (and that such request amounted to “seeking to obtain and use a judgment of the Tax Court as a collateral attack on the absolute discretion of the Minister under 247(10).” The appeal of the taxpayer was quashed.
Neal Armstrong. Summary of MEGLobal Canada ULC v. The King, 2025 TCC 50 under s. 247(10).
CRA covers additional points in its FAQ on the trust-reporting rules
CRA has revised its FAQ on the new trust reporting rules. Changes include:
- CRA has added a detailed description of what constitutes a trust under the common law (e.g. referring to the “three certainties”) or under the Civil Code. CRA states that “a person who is required to manage and dispose of trust property and who can exercise independent discretionary power over the property is a trustee rather than an agent” and that the “trustee of a bare trust, in contrast, acts as an agent for the beneficiaries when dealing with trust property.”
- Unlike the accommodation by the rules for beneficiaries who are not known or ascertainable with reasonable effort, CRA notes that the Regulations “do not include a relieving provision where the person making the return does not know the identity of a particular reportable entity” (other than a beneficiary).
- It indicates that the s. 163(5) gross negligence penalty could be imposed for failure to file a return rather than only in relation to a false statement or omission in a return that had been filed.
- Regarding the inclusion in listed (i.e., disclosure-exempted) trusts for a trust that was in existence for less than three months at the end of the taxation year, CRA states that this requirement is satisfied by a trust that ceased to exist during the particular taxation year at a date which was less than three months after it was created, and by a trust that was created less than three months before the end of the taxation year.
Neal Armstrong. Summaries of additions to CRA Webpage, Enhanced reporting rules for trusts and bare trusts: Frequently asked questions, updated on 14 March 2025 under s. 104(1), Reg. 204.2(1), s. 163(5) and s. 150(1.2)(a).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in November of 2000. Their descriptors and links appear below.
These are additions to our set of 3,151 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 24 1/3 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Malamute – Tax Court of Canada accepts that cheques to the shareholders labelled as (and treated rather like) “payroll” in fact were shareholder advances
A small contracting company made regular bi-weekly payments to its two shareholders (Mr. and Mrs. Lynch) in amounts equal to an even gross salary number (e.g., $6,000) minus amounts equal to income tax and CPP withholdings that would be applicable to such salary amounts. Mrs. Lynch, as an interim bookkeeper, notated the cheques as being “payroll” and for the first two months of 2018, but not thereafter, remitted source deduction amounts to CRA.
Cook J accepted the principle that “it is the intention of the parties (payer and payee) at the time of the payment that characterizes the nature of the payment” as salary or shareholder advance, but accepted the testimony before him that (consistent with the financial statements) the intention all along was that the payments were shareholder loan advances and not salary; and that the above bookkeeping reflected mistakes by an inexperienced and unsophisticated bookkeeper. He concluded:
This is the type of situation … wherein a shareholder receives draws on the shareholder loan account throughout the year and then a dividend determination is made at some point for the year.
Neal Armstrong. Summary of Malamute Contracting Inc. v. The King, 2025 TCC 47 under s. 5(1).
Seabridge – BC Supreme Court finds that pre-feasibility expenses to assess whether a deposit could potentially support a mine qualified as exploration expenses
Seabridge incurred various pre-feasibility expenses in relation to a large and complex gold-bearing deposit in BC. Many or most of the expenses were for consultants’ studies targeted at getting a better understanding as to whether a mine at the site might potentially be economically viable (along with some geotechnical drilling).
The “qualified mining exploration expense” definition in s. 25.1(1) of the BC Income Tax Act relevantly referred (like (f) in the Canadian exploration expense definition in ITA s. 66.1(6)) to “the purpose of determining the existence, location, extent or quality of a mineral resource” in B.C. In finding that such expenses so qualified, Maisonville J stated:
[M]ineral resource depends not only on the direct physical characteristics of the mineral resource, but also the broad range of factors that inform the economic viability of its extraction. Thus expenses that assist in the determination of the economic viability of a mineral resource are captured under the “quality” term of the purpose test, subject to the limitation that the expenses must be specific to a mineral resource in British Columbia being explored.
Neal Armstrong. Summary of Seabridge Gold Inc. v British Columbia, 2025 BCSC 558 under s. 66.1(6) – CEE – (f).
Neal H. Armstrong editor and contributor