News of Note
Income Tax Severed Letters 2 April 2024
Email this ContentThis 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).
3308367 Canada – Court of Quebec confirms that a CBCA corporation can be assessed within 2 years of its dissolution – or thereafter, if revived by the ARQ or CRA
The ARQ assessed the taxpayer within two years of the taxpayer’s dissolution pursuant to s. 210(3) of the CBCA. Six days later, and also within the two-year period, the ARQ revived the taxpayer pursuant to s. 209 of the CBCA.
In rejecting the taxpayer’s submission that the notice of assessment should have been for a nil amount since, at the time of its issuance, the taxpayer was still dissolved, Breault JCQ adopted the proposition in Watts (2023 TCC 11) that the Minister could assess a dissolved corporation within two years of its dissolution pursuant to s. 226(2)(b) of the CBCA and, following such two-year period, could also assess it if the corporation was revived. Here, given that both the assessment and revival occurred within the two-year period, the assessment was clearly valid.
Neal Armstrong. Summary of 3308367 Canada Inc. v. ARQ, No. 500-80-043022-228 (17 March 2025) under CBCA s. 226(2)(b).
Income Tax Severed Letters 26 March 2025
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
IWK Health – Tax Court of Canada finds that employers could not claim HST on the reimbursed health care expenses of their employees
Some Nova Scotia hospitals reimbursed (through a health care plan administrator) their employees for the employees’ costs including HST of acupuncture, massage therapy, naturopathy, or homeopathy services. The hospitals took the position that they were deemed by s. 175 to have received those care services themselves, and claimed public service body (PSB) rebates accordingly.
Wong J essentially followed Westcoast Energy in rejecting this position, stating that those services were “of a particularly personal and individual nature” and that she would expect the employees “to access these types of services on their personal time.” Accordingly, these services did not satisfy the s. 175 test of being “for consumption or use … in relation to activities” of the hospitals.
Neal Armstrong. Summary of IWK Health Centre v. The King, 2025 TCC 44 under ETA s. 175(1).
Excavations Marchand – Court of Quebec finds that a construction company’s equipment used to provide concrete at a construction site qualified as for manufacturing goods for sale
A construction company contracted with Hydro-Quebec for the installation and operation of an on-site portable concrete-producing facility for the provision of the concrete in the installation of a large hydro-electric dam at a remote location. Trudel JCQ found that such contract should be characterized as for the manufacturing of goods (the concrete) for sale, rather than as a contract of service, given that the predominant intention was to provide for the supply of cement to Hydro-Quebec.
He further found that the exclusion from a manufacturing operation for “construction” did not apply given the distinctness and separation of this operation from the construction business of the company. Accordingly, an ice maker and silos used in the operation qualified as Class 29 property that was qualified property for Quebec investment tax credit purposes.
Neal Armstrong. Summaries of Excavations Marchand et Fils Inc. v. Agence du revenu du Québec, 2025 QCCQ 378 under Class 29 and Reg. 1104(9)(c).
Neal H. Armstrong editor and contributor