News of Note
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
Email this ContentIn 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).
CRA rules on the creation of an aggregator fund on a rollover basis
CRA ruled on the creation, on a rollover basis, of a master, or “aggregator,” mutual fund trust, so that those unitholders of five existing mutual fund trusts (the “reorganizing funds” - each with somewhat different equity investment objectives) who wished to participate could hold their units in the reorganizing funds “through” such aggregator fund. The purpose was to simplify the administration associated with rebalancing of investments in the reorganizing funds, as this would no longer entail the participating unitholders redeeming units in one reorganizing fund and subscribing for units in another reorganizing fund.
In overview, the reorganization involved using three successive circular s. 107.4 transfers to create a holding fund through which the participating unitholders could hold their interests in the respective reorganizing funds, and then merging the five holding funds into a newly settled aggregator fund on an s. 132.2 rollover basis.
More particularly, the steps involved, first, each of the reorganizing funds transferring, to a corresponding newly formed Holdco fund, an undivided interest in its assets commensurate with the unitholdings in it of the participating unitholders, in exchange for the issuance of units of the Holdco funds to the participating unitholders. Thus, a portion of the assets of each reorganizing fund would be held for the Holdco fund (and, indirectly, for the participating unitholders), and the balance would be held for the non-participating unitholders.
The next two steps involved effectively converting the co-ownership interests of the Holdco funds in the assets of the reorganizing funds into units of the reorganizing funds. First, various Holdco funds transfer their assets to corresponding newly formed trusts (“NewFund Bs”) in consideration for additional units of the NewFund Bs, with the participating unitholders remaining unitholders of the applicable Holdco funds.
Then, all the assets of the NewFund Bs (being undivided interests in the assets of the reorganizing funds), are then transferred back to the applicable reorganizing funds for no consideration, but with the reorganizing funds issuing additional units to the applicable Holdco funds having an equivalent value (and with the NewFund Bs being terminated). Thus, the undivided interests in the assets of the reorganizing funds are joined together again as whole ownership interests.
The Holdco funds then transfer their units of the reorganizing funds to a newly formed aggregator fund under s. 132.2 in consideration for units of the aggregator fund, and then redeemed their units in consideration for the distribution of such aggregator fund units to the Holdco fund unitholders (being the participating unitholders).
Thus, the closing structure is that the participating unitholders now hold units of the reorganizing funds through a single aggregator fund, and the balance of the units in the reorganizing funds are held by the non-participating unitholders.
The ruling letter contained a representation that the NAV of each of the reorganizing funds immediately before the first s. 104.7 transfer will be the same as the NAV of each respective reorganizing fund following the third s. 104.7 transfer (with one exception). Messrs. Fedun, Tobin and Mann suggest that this signifies that the reorganization needed to be implemented while the stock exchanges were closed.
Summary of 2024 Ruling 2023-0962031R3 under s. 107.4(1); h/t Stan Fedun, John J. Tobin and Benjamin Mann, “Canada Revenue Agency rules on novel mutual fund trust reorganization” 30 June 2026 article on Torys website.
Somerset – Tax Court of Canada finds that a pre-1972 corp did not accomplish any substantive CCPC planning by continuing to BVI before a sale (otherwise, DAC would apply)
The taxpayer, which had been a B.C. corporation and a Canadian resident since its incorporation in 1943, sought to cease being a “Canadian corporation” as defined in s. 89(1) and, thus, to cease qualifying as a CCPC at the time of closing the sale of two Vancouver real estate properties. To this end, it continued to the British Virgin Islands (“BVI”) shortly before such closing, so that it treated the taxable capital gain of $16 million realized on such disposition as not being subject to refundable tax under s. 123.3 and as being eligible for the general rate reduction under s. 123.4.
The definition of "Canadian corporation" at any time referred to a corporation resident in Canada that was:
(a) incorporated in Canada, or
(b) resident in Canada throughout the period that began on June 18, 1971, and that end[ed] at that time.
Para. (a) was not satisfied since, by virtue of the continuance, it was deemed by s. 250(5.1)(a) to have been incorporated in BVI. Although it satisfied para. (b) on a literal basis since it had been continuously resident in Canada, MacPhee J adopted the interpretation in inter alia Saipem that para. (b) would apply only to a corporation not incorporated in Canada. However, s. 250(5.1)(a) deemed the taxpayer to have been incorporated in the BVI for most purposes including para. (b), so that at the disposition time it qualified as a Canadian corporation and, thus, as a CCPC.
If the taxpayer nonetheless had succeeded in ceasing to be a CCPC, then applying DAC, this would have resulted in an abuse of ss. 123.3, 123.4, and 250(5.1) for GAAR purposes. In rejecting the taxpayer's argument that there was no abuse because there was a reasonable alternative transaction—namely, that the taxpayer could have been incorporated in BVI and thereby avoided the tax under s. 123.3 -- MacPhee J accepted the Crown's submission that the alternative transaction must be one that is contemporaneous with the transaction actually undertaken.
Furthermore, the alternative transaction also did not satisfy a requirement, under the five-part test in 3295940 Canada Inc., that it produce tax consequences approximately as favourable as the series at issue. In particular, since under this scenario the taxpayer in fact had been incorporated in BVI and was continuously resident in Canada, it would be a “Canadian corporation” under para. (b) of the definition.
Neal Armstrong. Summaries of Somerset Limited v. The King, 2026 TCC 123 under s. 89(1) – Canadian corporation and s. 245(4).
Desjardins Sécurité financière Compagnie d’Assurance Vie – Tax Court of Canada applies the presumption against derogating from Superior Court jurisdiction
The taxpayer, an insurer, was assessed by CRA for Nova Scotia large corporations tax that was imposed pursuant to the Income Tax Act (Nova Scotia) but calculated in accordance with ITA s. 181.3. Smith J. found that the Tax Court lacked the jurisdiction to consider the taxpayer's appeal of this assessment.
The taxpayer had submitted that the statement in s. 75 of the Nova Scotia Act - that various provisions, including the Division J provisions regarding ITA appeals, applied to the large corporations provisions of Part III of the Nova Scotia Act - contrasted with a provision of the Nova Scotia Act stating that s. 169 applied for the purposes of that Act, which indicated a legislative intention that large corporations could appeal Nova Scotia large corporations tax assessments to the Tax Court.
In rejecting this submission, Smith J noted the established “rule that any derogation from the jurisdiction of the provincial superior courts (in favour of the Federal Court or otherwise) requires clear and explicit statutory language” and found that, rather than there being any such derogation, s. 2(10)(j) of the Nova Scotia Act had an “unambiguous” statement that the references in the cross-referenced ITA procedural provisions to the Tax Court of Canada referred to the Supreme Court of Nova Scotia.
Neal Armstrong. Summary of Desjardins Sécurité financière Compagnie d’Assurance Vie v. The King, 2026 CCI 109 under ITA s. 169(1).
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 3,600 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).
Neal H. Armstrong editor and contributor