News of Note
CRA indicates that once a Canadian corp has even a fleeting direct equity percentage in an FA, a T1134 reporting obligation is triggered (subject to group-filing relief) for that year
Email this ContentOn April 30, 2025, Canco rolled transferred all its shares of USCo under s. 85(1) to a newly-formed Canadian holding company (Holdco). Holdco, like Canco, had a June 30 year-end. On May 1, 2025, USCo was liquidated into Holdco so that Holdco now US LLC, directly.
CRA noted that if a Canadian corporation has a direct equity percentage in a given foreign affiliate at any point during a year, it is required to file a T1134 return for that foreign affiliate. Accordingly, as both Canco and Holdco directly held the shares of USCo in their June 30, 2025 taxation years, both were reporting entities and required to file T1134 returns for those taxation years.
However, assuming that they met the conditions for administrative relief in this regard (i.e., they were members of a related group of reporting entities who filed their tax returns in Canadian dollars (or in the same functional currency) and had the same fiscal year-end) , they could designate either one of them to file a single T1134 as their representative.
CRA also noted that the organizational structure that must be reported in the T1134 is the one as it existed at the end of the reporting taxpayer's taxation year.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.3 under s. 233.4(2)(a).
CRA reconfirms that structuring to convert a personal-use to an investment-use loan is not contrary to the revised GAAR
In 2013-0477601E5, CRA indicated that, generally, interest would be deductible where an individual used proceeds from the sale of publicly traded common shares to pay down a mortgage on a personal residence and then took out a loan to repurchase identical shares, provided that there was a direct link between the borrowed funds and an eligible use. Having regard to the introduction of ss. 245(4.1) and (4.2), has this position changed?
CRA indicated that this continued to reflect its position – although, as usual, reaching a GAAR required a thorough analysis of all the facts and circumstances.
A similar question and answer appear at 9 October 2025 APFF Financial Planning Roundtable, Q.3.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.2 under s. 245(4.1).
CRA describes a ruling request that it considered to engage an abuse of the scheme of s. 80
We have provided the questions posed, and summaries of the preliminary oral responses given, at the December 2, 2025 Canadian Tax Foundation CRA Roundtable.
Q.1 concerned a CRA GAAR position.
In Year 1, a corporation resident in Canada ("Parentco") made a $1,000 interest-free loan to its wholly owned Canadian subsidiary ("Subco") and, in that year, Subco incurred a $1,000 non-capital loss.
For Year 2, Subco (which had become inactive) claimed the non-capital loss by implementing a loss consolidation arrangement with Parentco.
In Year 3, Parentco forgave the Subco loan and, immediately after such settlement, Subco was wound up into Parentco under s. 88(1), so that Parentco received all the property of Subco, having a nominal cost amount and FMV. Parentco claimed a capital loss of $1,000 on the loan settlement and Subco claimed the insolvency deduction under s. 61.3(1) to fully offset its inclusion under s. 80(13).
CRA indicated that it had refused to provide a favourable ruling for similar transactions. It noted that Subco benefited not only from a gain on the forgiveness of the loan but also from expenses and deductions related to the Subco loan, which generated the non-capital losses; and that this was contrary to the scheme of s. 80, as established in Lecavalier. Furthermore, two losses were being claimed regarding the same investment.
It considered this view to be consistent with Example 23 of IC88-2, Supp. 1 (respecting a corporation transferring all its assets to a wholly-owned subsidiary at stepped-up s. 85 agreed amounts so as to use its losses and so that its realization of a forgiven amount would apply to the Subco shares’ ACB rather than to more valuable tax attributes temporarily parked in Subco - followed by its amalgamation with Subco).
Regarding the Q.1 situation, CRA did not indicate whether the appropriate remedy would be to deny (i) the application of s. 61.3(1) to Subco, so that it would have an s. 80(13) tax liability that would flow through to Parentco on the wind-up (under s. 160 or otherwise), (ii) deny the interest deductions to Parentco under the loss consolidation arrangement or (iii) deny the capital loss to Parentco - although perhaps (i) would be the leading candidate, notwithstanding that the core object of s. 61.3(1) is merely to deal with a debtor that has no net assets.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.1 under s. 245(4).
Montplaisir – Court of Quebec finds (re s. 6(6)(a)(i)) that a succession of engagements for projects of his employer’s client amounting to 10 years were “of a temporary nature”
The taxpayer was employed by an engineering services firm (Norda), which was hired by a client (Valero) to provide contract administration services at the offices of Valero. The taxpayer was hired by Norda to fulfill this role, which were performed pursuant to what turned out to be a succession of projects. Each contract with Valero was for a year or so, and they accumulated to a total of 10 years before the arrangement was terminated. Throughout this period, the taxpayer provided his services in relation to the various Valero projects from the Valero offices in the Lévis area, and visited his wife and children in Bécancour on weekends and for an evening during the week, and the rest of the time stayed at rented premises in Lévis.
In finding that the performance of the taxpayer’s duties at the “special work site” (namely, the Valero offices) were “of a temporary nature” as required by the Quebec equivalent of s. 6(6)(a)(i), Painchaud JCQ stated:
Over the 10 years, Mr. Montplaisir stated that he did not know whether, at the end of the period specified in Valero's services order, his services would still be required, and if so, for how long. His employment in Lévis was thus dependent on the company's major projects and its budgetary position.
Accordingly, the taxpayer was not taxable on the accommodation and kilometrage allowances paid to him by Norda.
Neal Armstrong. Summary of Montplaisir v. Agence du revenu du Québec, 2025 QCCQ 6998 under s. 6(6)(a)(i).
We have translated 7 more CRA interpretations
We have translated a CRA interpretation released last week and a further 6 CRA interpretations released in January of 2000 and December of 1999. Their descriptors and links appear below.
These are additions to our set of 3,387 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).
Income Tax Severed Letters 3 December 2025
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA effectively rules that a preordained succession of monthly dividends was not a series for SIDT purposes
A Canadian corporation (Partner B) made monthly payments of interest on a note owing by its wholly-owning parent (Partner A), with such interest payments funded by monthly distributions received by Partner A on its limited partnership interest in a partnership. Partner B has been monthly paying such interest receipts to Partner A as PUC distributions (net of reserves); and Partner A, in turn, has been making matching monthly distributions of PUC to its non-resident shareholder.
It was proposed that, rather than continuing to distribute PUC, Partner B will adopt a policy of paying monthly dividends to Partner A of the amounts received. Partner A (presumably a ULC - see 2014-0534751R3), in turn, will make corresponding monthly increases in the stated capital of its shares (generating s. 84(1) deemed dividends) and then distribute such paid-up capital increases in cash to the non-resident shareholder, net of Part XIII withholding attributable to such s. 84(1) dividend.
The definition in s. 55(1) of the “safe-income determination time” (SIDT), in respect of a transaction or a series of transactions, relevantly refers to the earlier of:
(a) the time immediately after the earliest disposition or increase in interest described in any of ss. 55(3)(a)(i) to (v) that resulted from the transaction or series; and
(b) the time that is immediately before the earliest time that a dividend is paid as part of the transaction or series.
CRA relevantly ruled that the SIDT applicable to each monthly dividend (within the following 12 months covered by the scope of the ruling letter) will be the time immediately before the payment of that dividend, rather than immediately before the payment of the first such dividend pursuant to the revised policy.
Neal Armstrong. Summary of 2025 Ruling 2023-0990951R3 under s. 55(1) – SIDT.
CRA rules on the unwinding of a sandwich structure
Under a sandwich structure, a Canadian Opco (Cansub) was wholly-owned by Foreign Parentco, which in turn was held by both Canadian shareholders including four Cancos who were unrelated to each other and to whom it was a foreign affiliate, as well as by non-resident shareholders.
The structure was to be unwound essentially by having the shareholders transfer their Foreign Parentco shareholdings to a new Canadian holding company (New Canco). Such a transfer would occur, in the case of the Canadian shareholder transfers, under s. 85(1), with the Cancos electing at an amount that would access the exempt surplus of Foreign Parentco using the s. 93(1) election.
Foreign Parentco would pay a dividend-in-kind of its Cansub shares to New Canco; and New Canco would then transfer its Foreign Parentco shares to Cansub on an s. 85(1) rollover basis.
Rulings included:
- Pursuant to s. 212.1(1.1)(a), Foreign Parentco would be deemed to receive a dividend from Cansub on the payment of the dividend in kind equal to the excess of the FMV of the distributed Cansub shares over their paid-up capital (PUC).
- Such deemed dividend would be treated as a dividend for purposes of Art. X(2) of the applicable treaty.
- Such deemed dividend would be excluded from “A” of FAPI by virtue of the para. (c) exclusion for taxable dividends; and would also be excluded from Foreign Parentco’s proceeds of disposition for purposes of “B” of the FAPI definition by virtue of the exclusion in para. (k) of the proceeds of disposition definition for taxable dividends.
- Such deemed dividend, less the applicable Canadian withholding tax, would be included in computing Foreign Parentco’s exempt surplus in respect of New Canco by virtue of subpara. (v) of A, and subpara. (iii) of B, of the definition of “exempt surplus” in Reg. 5907(1).
Neal Armstrong. Summary of 2025 Ruling 2024-1030121R3 under s. 212.1(1.1)(a).
Bolduc – Quebec Court of Appeal applies the s. 246(1) equivalent to a benefit conferred by a partnership on the shareholder of a limited partner or of a business contractor
A limited partnership (“SEC”) sold condo units for less than their fair market value to (i) the daughter and wife of Mr. Migliara, the founder of SEC, (ii) the two daughters of Mr. Bolduc, the other founder of SEC, (iii) Mr. and Mrs. Lapolla, who were shareholders of one of the limited partners, which also acted as SEC’s sales agent, and (iv) Mr. Sponek, who was a shareholder of a business partner of SEC and was admitted to be a related person.
In addition to finding that the Quebec equivalent of ITA s. 69 applied to deem SEC to have received fair market value proceeds for the sales, and that the Quebec equivalent of ITA s. 56(2) applied to include a benefit in Mr. Migliara's income in respect of the sale to his spouse and daughter (given that inter alia that he was “the driving force behind the SEC”) the Court went on to find that these sales resulted in taxable benefits to all of the above-named individuals pursuant to s. TA 1082.1 (similar to ITA s. 246(1)(a)). The Court stated (at para. 32, TaxInterpretations translation):
The scope of analysis under TA section 1802.1 is broad. It applies when the person receiving the benefit is not a shareholder, director, or employee. As soon as a benefit is received and the amount of that benefit is not included elsewhere in computing the taxpayer's income, whereas it should have been if the payment had not been made indirectly, TA section 1802.1 applies.
The Court did not provide additional analysis, for example, as to why a direct payment by a partnership to the shareholder of a passive limited partner would otherwise have been taxable.
Neal Armstrong. Summaries of Bolduc v. Agence du revenu du Québec, 2025 QCCA 1470 under s. 69(1)(b), s. 56(2) and s. 246(1).
CRA indicates that an undivided interest in a building can satisfy the asset use test in the SBC and QSBCS definitions
Holdco A held 60% of the shares of Opco, with the other 40% held by an unrelated corporation (Holdco B). Opco leased, for use in its Canadian active business, 60% of the space in a building which Holdco A held in equal co-ownership with Holdco B.
The CRA indicated that a co-owner's undivided interest in an immovable is included in the term "assets" for purposes of the requirement in para. (a) of the small business corporation definition that “all or substantially all of the fair market value of the assets [of the particular corporation] is attributable to assets that are … used principally in an active business carried on primarily in Canada by the particular corporation or a corporation related to it” and the similar test in subpara. (c)(i) of the QSBC definition.
Accordingly, the 60% co-ownership interest of Holdco A could satisfy this test if, as a factual matter, it was reasonable to consider that such interest in the building was used principally in the Canadian active business of the related corporation (Opco).
Neal Armstrong. Summary of 3 June 2025 External T.I. 2022-0925091E5 F under s. 248(1) – SBC – para. (a).
Neal H. Armstrong editor and contributor