News of Note
CRA indicates that the transfer of a registered plan investment to the controlling individual shortly before its becoming non-qualified is a swap transaction subject to non-refundable tax
Email this ContentWhere the controlling individual of a registered plan becomes aware that a plan investment will become a non-qualified investment or a prohibited investment (a “bad investment”), can the individual acquire that investment from the trust before it becomes bad without incurring Part XI.01 tax – or, if there is such tax, could it be refunded under s. 207.04(4)?
CRA noted that such acquisition would be a swap transaction, i.e., generally, a transfer of property between the registered plan and the controlling individual. In particular, the exception under para. (c) of the definition of swap transaction, for where the individual is entitled to a refund under s. 207.04(4), would not apply to a transfer of an investment before it becomes bad.
The s. 207.04(4) refund would not be available since, before the time of the acquisition, which would be deemed under s. 207.01(6) to be immediately before the investment becoming bad, the controlling individual had been informed that the investment would become bad.
The Minister had the discretion to waive all or part of the 50% tax under s. 207.06(2) if it was just and equitable to do so, having regard to all the circumstances, including those listed in s. 207.06(2). No comment was made on whether such relief would be provided.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.13 under s. 207.04(4).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in January of 2000. Their descriptors and links appear below.
These are additions to our set of 3,373 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 25 ½ 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 the FHSA withdrawal rules could apply where a qualifying home is gifted by notarized deed to the FHSA holder
Para. (c) of s. 146.6(1) – “qualifying withdrawal” in the FHSA rules requires that the acquisition of the qualifying home be provided for in an "agreement in writing."
CRA found that this “agreement in writing” requirement was satisfied where the FHSA holder received a gift of a qualifying home from her mother pursuant to a Quebec notarized deed of gift that was signed by both parties – so that the donee could make a timely qualifying withdrawal from her FHSA even though there was no purchase price for her to fund.
Perhaps the same thing could be accomplished in a common law province if the donor and FHSA holder entered into a "gift agreement" pursuant to which the donor conveyed the home as a gift and the FHSA holder agreed to accept the gift.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.12 under s. 146.6(1) - “qualifying withdrawal” – para. (c).
CRA indicates that the FHSA rules can accommodate the acquisition of an undivided interest in a qualifying home
Para. (c) of the definition in s. 146.6(1) of a “qualifying withdrawal” from an FHSA establishes a requirement that the acquisition of the qualifying home must be provided for in a written agreement to which the individual is a party. The CRA indicated that this requirement could be satisfied by the purchase of an undivided interest in the home. For example, this could occur after the commencement of a common-law relationship by the FHSA holder purchasing a 50% undivided interest in the home from their partner.
Regarding the question of whether the same conclusion would obtain if a smaller interest were purchased, such as a 40%, or even a 1%, undivided interest, CRA indicated:
In cases where the individual intends to co-own a housing unit with one or more persons, it does not appear to be necessary that the co-ownership shares always be of equal proportions. However, in circumstances where the individual would acquire only an undivided interest, the proportion of which would appear to be disproportionate to the use of the dwelling as the individual’s principal place of residence, the written agreement could, depending on the situation, be considered not to have been entered into for the purpose of acquiring a qualifying home for the purposes of section 146.6.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.11 under s. 146.6(1) - “qualifying withdrawal” – para. (c).
CRA indicates that an estate is not entitled to deduct an OAS overpayment to the deceased that it repays
CRA indicated that where an estate repaid old age security ("OAS") pension benefits that had been overpaid to the deceased, it would not be entitled to a deduction under s. 60(n) or (n.2) for the repayment because the excess OAS benefits had been received by another taxpayer (the deceased) rather than the estate.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.10 under s. 60(n.2).
CRA confirms that a room or a basement can be a “residential property” for s. 67.7 purposes, but not a “housing unit” for flipped property purposes
The definition of “flipped property” in s. 12(13)(a) refers to a “housing unit;” whereas the definition of “non-compliant short-term rental” in s. 67.7(1) depends on the concept of a “residential property” (also defined in s. 67.7(1)).
What is the difference? For example, would the latter include a bedroom or a section of a residence, such as a basement?
CRA indicated that the term “housing unit” used in the flipped property rules was restricted to a single housing unit.
As a residential property, as defined, referred to all or any part of a (legally compliant) house, apartment, condominium unit, etc., a room or basement would qualify as a residential property for such purposes.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.9 under s. 67.7(1) – residential property.
CRA indicates that deferring the date of disposition of a housing unit to well after the sale date and 366 days after the acquisition date would avoid the flipped property rules
Eight months after acquiring a housing unit, an individual signed an agreement to sell it, but with the date of transfer of ownership being set 366 days after the acquisition date, and with the residence in the meantime being leased to the purchaser.
CRA indicated that if the date of disposition of the residence occurred 366 days after the acquisition date, it would not constitute a flipped property. However, the determination of the disposition date would require an examination of the particular circumstances, including the legal effects and interaction between the sale agreement and the interim lease. That said, CRA noted its longstanding position that, absent sham, determining whether a contract was a lease or a contract for a sale was a function of the legal relationships created by the terms of the agreements, rather than the underlying economic realities.
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.8 under s. 12(13)(b).
Joint Committee agrees with Justice proposal to double the informal procedure monetary thresholds
The Tax Court of Canada Act makes the informal procedures available for ITA appeals where the aggregate amounts in issue do not exceed $25,000, or where the amount of a loss determined under ITA s. 152(1.1) does not exceed $50,000; or, for ETA appeals, where the amount in dispute does not exceed $50,000.
Regarding a proposal of the Department of Justice that the above ITA thresholds be increased to $50,000 and $100,000, respectively, and that the above ETA threshold be increased to $100,000, the Joint Committee indicated that its consultations did not indicate any specific concerns with this proposal.
It suggested that the Department of Justice review the monetary thresholds on a regular basis; and noted that some respondents had recommended that the Department of Justice consider undertaking a broader consultation of the tax dispute resolution process.
Neal Armstrong. Summary of 11 November 2025 Joint Committee Submission, “Proposed Amendments to the Tax Court of Canada Act – Increase to Monetary Thresholds for Informal Procedure Appeals,” under Tax Court of Canada Act, under s. 18(1).
Income Tax Severed Letters 12 November 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
DEML Investments – Federal Court of Appeal finds that it abused the rationale of s. 88(1)(d) to bump the ACB of a resource partnership interest
In early 2008, the sale of resource properties by an arm’s length vendor (Transglobe) to the parent (Direct Energy) of the taxpayer (DEML) was structured on the basis that Transglobe transferred 99% and 1% of the resource properties to two wholly-owned Newcos (137 and 138, respectively), at a s. 85(1) elected amount of around $34.9 million in the case of the transfer to 137, which then transferred the resource properties on an s. 97(2) rollover basis to a newly-formed partnership (DERP 2) for nominal elected amounts, with no effect on the addition to the CCOGPE balance of 137 from the first transaction of $34.9 million (consistent with the ITA scheme for the CCOGPE being maintained at the partner, not the partnership, level). Direct Energy then acquired the shares of 137 and 138 from Transglobe for $51 million and $0.5 million, respectively.
A year later, Direct Energy transferred the shares of 137 to DEML on an s. 85(1) rollover basis, with 137 then distributing its partnership interest in DERP 2 to DEML on its winding up, with the ACB of that partnership interest being bumped under s. 88(1)(d).
DERP 2 then distributed its resource properties to DEML as a return of capital, thereby increasing the CCOGPE balance of DEML and reducing the ACB of DEML’s partnership interest by the FMV of the resource properties – but with these items effectively being approximately reversed at the partnership year end as a result of DERP 2’s proceeds of the distribution of the resource properties being allocated to its partners.
After then reseeding DERP 2 with a small resource property that was of interest to a third-party purchaser, DEML sold its partnership interest to that purchaser, thereby realizing a capital loss.
Before finding that the GAAR applied to deny that portion of the above capital loss that was attributable to the s. 88(1)(d) bump, Webb JA first found that the rationale of the bump provisions was to allow the parent to add some or all of ACB lost on winding-up a sub to the ACB of non-depreciable capital property acquired by it on the sub’s winding-up, but that, “as noted in Oxford Properties, the property to which the ACB is effectively transferred must be a non-depreciable capital property that would be taxed at the same rate of inclusion as the shares of the subsidiary that will disappear on the winding-up of the subsidiary.”
Furthermore:
The use of a partnership to bump up the ACB of the partnership interest when the partnership holds a Canadian resource property frustrates the distinction between a non-depreciable capital property and a Canadian resource property as it results in a bump in the ACB of a partnership interest when the underlying value of that partnership interest is attributable to a Canadian resource property.
After further observing that the transactions here entailed a “doubling up of tax attributes” in that there was a bump to the ACB in the partnership interest attributable to the value of DERP 2’s resource properties, yet at the same time DEML maintained a significant balance in its CCOPGE account ($34.9 million) in relation to the same Canadian resource properties, Webb JA stated (at para. 74):
The rationale of these provisions is not to allow a corporate parent to have access to both an increased ACB of a partnership interest held by that subsidiary and also access to the CCOGPE of the subsidiary maintained for the Canadian resource properties that are owned by that partnership.
Neal Armstrong. Summary of DEML Investments Limited v. Canada, 2025 FCA 204 under s. 245(4).
Neal H. Armstrong editor and contributor