News of Note
Ingredion – Tax Court of Canada finds that a proposed Crown pleading that an arm’s length interest rate would be nil was “untenable”
Email this ContentThe Minister considered that the cross-border “hybrid instrument” structure at issue should be recharacterized as an equity investment in the taxpayer by its U.S. parent, and reassessed and pleaded accordingly based on ss. 247(2)(b) and (d).
The Minister now sought leave to amend such pleadings to state that, to the extent the parties dealing at arm's length would have entered into the transactions (which was denied), at all times the arm's length rate of interest for the money that the taxpayer borrowed from its U.S. parent as part of the series was 0%, so that the interest actually charged should be denied pursuant to ss. 247(2)(a) and (c).
In refusing such amendment, Sorensen J stated:
[I]n an environment in which annual inflation is greater than zero and Treasury Bills offer even negligible yields, the idea of handing $300M to an arm’s length party in a business-to-business transaction with nil interest is untenable. …. [B]aldly pleading an untenable fact does not meet the threshold for amending a pleading.
Neal Armstrong. Summary of Ingredion Canada Corporation v. The King, 2026 TCC 3 under s. 247(2)(c).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in December of 1999. Their descriptors and links appear below.
These are additions to our set of 3,448 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 26 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA publishes the 9 October 2025 APFF Roundtable
CRA has published the final version of the 9 October 2025 APFF Roundtable, along with two of the items (Q.8 and Q.9) from the 9 October 2024 APFF Financial Planning Roundtable. There were essentially no changes from the provisional answers given in October other than that, in the case of Q.9 of the regular APFF Roundtable, CRA noted that in order for shares of the Opco in that question to qualify as having QSBC shares, those shares could not be owned exclusively by Holdcos, so that CRA assumed that at least one share was owned directly by an individual.
For convenience, the table below links to these Roundtable items and the summaries which we prepared in October.
Premier Fasteners – Tax Court of Canada notes that CRA can use the s. 152(7) alternative assessment approach at any time
While auditing the 2013 and 2014 taxation years of the taxpayer, CRA repeatedly asked for supporting accounting documentation, to no avail. It then issued a requirement to RBC for the taxpayer’s bank statements, and used them to perform a bank deposit analysis. It then reassessed the taxpayer pursuant to s. 152(7), based on the results of that analysis by inter alia adding unreported revenue of $1.8 million and $4.6 million for the 2013 and 2014 taxation years, respectively.
Before finding that the bank deposit analysis as performed was reliable and not fundamentally flawed, and largely affirming the reassessments insofar as they related to understated revenue, Derksen J stated (at para. 28):
[S.] 152(7) does not require that the taxpayer’s records be inadequate before the Minister can rely on an alternative assessment technique. Thus, the Court does not have to be satisfied that it was necessary for the Minister to use an alternative assessment technique. The Minister can use an alternative assessment technique at any time regardless of the state of the taxpayer’s records … .
Gross negligence penalties were also sustained, given that it should have been evident that the bookkeeper was not able to handle the workload.
Neal Armstrong. Summaries of Premier Fasteners Inc. v. The King, 2026 TCC 2 under s. 152(7), s. 163(2) and s. 261(1) – relevant spot rate.
CRA amends its amalgamation Folio to discuss the EIFEL rules
CRA has published a revised version of its Folio on amalgamations that reflects the interaction of the amalgamation rules with the EIFEL rules. Observations include:
- S. 87(2.1)(a.1) provides that the amalgamated corporation is a continuation of its predecessors for purposes of computing its cumulative unused excess capacity (CUEC).
- However, pursuant to s. 111(5.01), the CUEC of a taxpayer for any taxation year ending after a loss restriction event is determined without regard to component elements in the CUEC computation that occurred in taxation years ending before that time.
- The rule in s. 87(2.1), permitting the amalgamated corporation to deduct various types of losses of predecessors, also applies to restricted interest and financing expenses (RIFE).
- However, the loss streaming and denial rules in ss. 111(4) to (5.4) are also applicable to RIFE on an acquisition of control, which is to be tested on an amalgamation under the s. 256(7)(b) rules.
Neal Armstrong. 49 summaries of Income Tax Folio S4-F7-C1, Amalgamations of Canadian Corporations, dated January 8, 2026 including under s. 87(2.1)(a.1), s. 111(5.01), s. 87(2.1) and s. 111(5).
Chuang – BC Court of Appeal finds that the foreign buyer’s tax applies to all of the purchase price of a Canadian who acquires in part for a non-resident beneficiary
Ms. Hsia, a Canadian citizen, and her fiancé, Mr. Chuang, a foreign national, bought a residential property in a “specified area” (i.e., subject to the foreign buyer’s tax) of B.C. Mr. Chuang contributed 40% of the purchase price but registered a 5% interest on title, while Ms. Hsia registered the remaining 95% interest and her mother contributed 60% of the purchase price.
The additional transfer tax (“ATT”) imposed pursuant to the Property Transfer Tax Act (B.C.) (the “PTTA”) was paid based on 5% of the declared fair market value of the property. The Chambers Judge concluded that, by operation of law (i.e., resulting trust), Ms. Hsia held a substantial portion of her registered 95% interest in trust for Mr. Chuang.
On this basis, Fleming, J.A. concluded that ATT had been correctly assessed on the FMV of the property. In particular:
- Ms. Hsia was a “taxable trustee” under the s. 2.01 definition, i.e., although she was not a foreign entity herself, she was the trustee of a resulting trust for a “foreign entity” (Mr. Chuang), who held a beneficial interest in the residential property to which the transaction related; and
- accordingly, s. 2.02(5)(a) applied, which provided that the ATT was to be calculated on the (total) transaction FMV where each transferee was a foreign entity or a taxable trustee.
Fleming, J.A., indicated that thus the “legislature expressly contemplates a Canadian transferee being liable for the additional transfer tax as a taxable trustee”, i.e., “the definition of a ‘taxable trustee’ captures both a foreign entity and a Canadian entity holding some interest in property in trust for a foreign entity”.
Neal Armstrong. Summary of Chuang v. British Columbia, 2026 BCCA 10 under Property Transfer Tax Act (B.C.), s. 2.02(5)(a).
Income Tax Severed Letters 14 January 2026
This morning's release of 17 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Royal Credit Services – Ontario Divisional Court finds that the Ontario-Quebec MOU does not apply to inconsistent methods for interprovincially allocating income as filed by the taxpayer
In its 2011 returns, Royal Credit treated itself as a loan corporation (as described in Reg. 405 of the federal ITA Regulations) in its Quebec returns, and as a general corporation (as described in Reg. 402 of such Regulations) for Ontario purposes. As a result, a higher portion of its income was allocated to Quebec for Quebec income tax purposes than was allocated to Quebec for Ontario income tax purposes.
It sought to have CRA (in its capacity of agent for the Ontario Minister of Finance) resolve this double taxation issue at the intergovernmental level by initiating negotiations under the interprovincial MOU. CRA refused.
In denying this application for judicial review of that decision, Charney J found (consistent with the CRA and ARQ view) that the MOU relevantly only dealt with the situation where one province was “proposing to change the application of the allocation formula used by a taxpayer,” whereas here, neither province was proposing to change the allocation formula that the taxpayer had applied for each province.
In passing, Charney J noted that Royal Credit had recently brought a successful proceeding in the Quebec Superior Court for judicial review of the refusal of the ARQ to switch Royal Credit over to the Reg. 402 general corporation method for its 2011 taxation year, with the result that the ARQ was now required to reconsider that request.
Neal Armstrong. Summary of Royal Credit Services Inc. v. Ontario (Minister of Finance), 2026 ONSC 115 under Reg. 402.
We have translated 7 more CRA interpretations
We have translated a CRA interpretation released last week and a further 6 CRA interpretations released in December of 1999. Their descriptors and links appear below.
These are additions to our set of 3,425 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 26 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 1999-12-10 | 5 November 1999 Internal T.I. 9827587 F - DÉDUCTION POUR IMPÔTS ÉTRANGERS | Treaties - Income Tax Conventions - Article 24 | Art. XXIV(5)(b) of the Canada-U.S. Tax Convention, given that Art. XXIV(5)(b) applies to computing a tax credit rather than income from property |
| Income Tax Act - Section 20 - Subsection 20(11) | s. 20(11) deduction available to U.S. citizen residing in Canada | ||
| 18 October 1999 Internal T.I. 9905377 F - ALLOCATION FRAIS DE DEPLACEMENT | Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(b) | if per kilometre allowance is unreasonable, total allowance is included in income | |
| 26 October 1999 Internal T.I. 9913080 F - EXPROPRIATION | Income Tax Act - Section 13 - Subsection 13(21) - Proceeds of Disposition - Paragraph (d) | costs of moving equipment assimilated to proceeds in respect of expropriation of plant | |
| 27 July 1999 Internal T.I. 9913490 F - LOCATION- MONTANT REÇU- JUGEMENT | Income Tax Act - Section 9 - Compensation Payments | amount received for a release could constitute proceeds of disposition of a right | |
| 27 September 1999 Internal T.I. 9916367 F - REMISE DE DETTE/PRET ETUDIANT | Income Tax Act - Section 56 - Subsection 56(1) - Paragraph 56(1)(n) | partial loan repayments where students achieved their degrees were prizes for achievement | |
| Income Tax Act - Section 80 - Subsection 80(1) - Forgiven Amount | partial repayment of loans under a Quebec government program did not represent loan forgiveness (the lenders themselves did not forgive the loans) | ||
| 8 June 1999 APFF Roundtable Q. 51, 9913160 F - PAIEMENT INCITATIF À LA LOCATION | Income Tax Act - Section 9 - Timing | Canderel indicates that the onus is on CCRA to demonstrate that its income computation method provides a more accurate picture/ those in identical fact situations to Canderel can currently deduct their unamortized TIP balance |
Strathcona provided shareholders with a choice between receiving a PUC distribution or a taxable dividend
Strathcona intended to distribute $2.14 billion of the proceeds from the sale of its Montney assets. It determined that not all shareholders would prefer to receive the distribution as a PUC distribution rather than as a taxable dividend. Accordingly, shareholders were given the choice.
Electing shareholders could opt to receive a PUC distribution. This was achieved through a s. 86 exchange under the Alberta plan of arrangement of their common shares for (newly-created) Class A common shares of Strathcona, the receipt of the PUC distribution on their Class A common shares and the subsequent s. 86 exchange of those Class A common shares back for their original common shares. (In the brief interim, the common shares had been temporarily held in treasury by Strathcona rather than being cancelled.) The Class A common shares had identical attributes to the common shares, except that they were convertible into common shares and entitled to an additional day's notice of any shareholder meeting.
One or both of the following bases was identified for considering that s. 84(4.1) did not apply to the PUC distribution. First, the special distribution was paid in connection with the reorganization of Strathcona's business into a pure-play heavy oil company and the discontinuance of its Montney business segment. Second, it represented the one-time and prompt distribution of the proceeds received by the Company on the Montney asset sales.
Shareholders who did not elect to receive the PUC distribution retained their common shares and received an equivalent taxable dividend instead, which was subject to Part XIII tax in the case of non-residents.
For U.S. tax purposes, the exchange of common shares into and back out of Class A common shares were treated as transitory steps that should be ignored, so that there was considered to be a taxable distribution, subject to the possibility in the case of non-corporate U.S. holders of being treated as a partial liquidating distribution and, therefore, as a redemption transaction.
Neal Armstrong. Summary of Management Information Circular of Strathcona Resources Ltd. (“Strathcona” or the “Company”) regarding a special distribution pursuant to a Plan of Arrangement under Spin-offs and Distributions – Other – S. 84(4.1)(a) and (b) distributions.
Neal H. Armstrong editor and contributor