News of Note
Coréalis – Quebec Court of Appeal confirms that putting pharmaceutical companies’ drugs into capsules for clinical tests qualified as manufacturing for sale
Email this ContentCoréalis entered into “service agreements” with pharmaceutical companies pursuant to which it would develop and manufacture clinical lots of solid oral dosage forms (tablets, capsules and granules) containing an active pharmaceutical ingredient (API) provided by the companies. These along with placebos, which were also manufactured and provided by Coréalis, were used in clinical trials of the drugs by the companies.
Hamilton JCA affirmed the trial judge’s finding below that the equipment which Coréalis had purchased and used in manufacturing the clinical lots qualified for Quebec investment tax credits based on its having satisfied the requirement under the description of a Class 29 property that the equipment had been acquired “to be used directly or indirectly by him in Canada primarily in the manufacturing or processing of goods for sale.”
First, the production of clinical batches for the drug companies were distinct transactions from the services of Coréalis in formulating the product so that (subject to the second point below) the capsules were to be considered as sold to those companies rather than being assimilated to a provision of services to them.
Second, although the API was a specialized high-value product, the trial judge had made a non-reversible finding that it represented only a small part of the total property provided by Coréalis to the drug companies, so that the property in the capsules was transferred to them by sale rather than by accession to the API.
Neal Armstrong. Summary of Agence du revenu du Québec v. Pharma Coréalis Inc., 2025 QCCA 1346 under Class 29.
CRA indicates that a s. 60(l)(v) RRIF-to-RRSP direct transfer in the first 60 days of the year must be reported on the Sched. 7 for the previous taxation year
CRA indicated that where there was a direct transfer from a RRIF of an annuitant to the annuitant’s RRSP in accordance with s. 60(l)(v) in the first 60 days of a year (e.g., 2025), the taxpayer was required to include the RRIF benefit in income for the 2025 taxation year, and may also deduct, for that same taxation year, the amount that was contributed by direct transfer to the RRSP, provided that the amount was reported on Schedule 7 for the preceding taxation year (2024).
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.4 under s. 60(l)(v).
CRA confirms that structuring to satisfy the s. 20(1(c) direct-use test is not contrary to the revised GAAR
Folio S3-F6-C1 stated that a “taxpayer may restructure borrowings and the ownership of assets to meet the direct use test” under s. 20(1)(c). The Folio provided the example of an individual selling shares on the TSX in order to use the proceeds to pay off borrowings that had been used to acquire a personal-use property (her condominium); and borrowing money to acquire replacement shares, such that the borrowed money was directly used for an income-producing purpose.
CRA confirmed that this “series of transactions … would not engage the application of the GAAR” notwithstanding the introduction of s. 245(4.1) (but cautioned that its answer might differ if the series included other transactions).
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.3 under s. 245(4).
CRA confirms the requirement for T5 reporting by the issuer of a fully registered bond both any s. 12(4) interest on stripped coupons and of the interest-coupon payments
Where s. 12(4) applied to the holder of a coupon on a fully registered bond that had been detached, the debtor was required, under Reg. 201(4), to report on a T5 slip the interest which would be deemed to accrue on the coupon under s. 12(4) for the year if it were the taxation year of the taxpayer; and on payment of the coupon by the debtor, it would be required, pursuant to Reg. 201(1)(b)(i), to issue a T5 slip for the interest paid that was in excess of the interest that had been reported under Reg. 201(4).
Neal Armstrong. Summary of 9 October 2025 APFF Financial Planning Roundtable, Q.2 under Reg. 201(1)(b)(i).
Castro – Quebec Superior Court grants judicial review of an ARQ refusal to backdate a QST registration by more than 30 days
After a long and difficult history (see, e.g., Castro) the Castros requested in 2023 that the ARQ retroactively register, for QST purposes, a corporation to which they had transferred real estate in 2010. They hoped that, by virtue of such retroactive registration as of the 2010 transfer date, the corporation would now be the one liable for the QST on the transfer, be able to claim a corresponding input tax refund, and that the ARQ assessments of them in 2016 for failure to charge QST on the 2010 transfer could be annulled.
The ARQ refused the request on the basis that they had not complied with the relevant ARQ Bulletin requiring that either the retroactive backdating not exceed 30 days or that the applicants demonstrate that, on the transfer date, the corporation had been obligated to register for QST purposes (the "Decision").
The Castros now sought judicial review of the Decision (and sought review in the Federal Court of the corresponding CRA refusal).
Vaillancourt JCS noted that the Quebec equivalent of ETA s. 241(1) did not place limits as to the discretion of the ARQ as to what extent to retroactively register a taxpayer, referred to Stemijon as authority for the proposition that “[i]t is a well-established legal principle that a decision based solely on policy, and not on the law, cannot be considered reasonable” and then stated:
For this reason alone, the Decision must be considered unreasonable. The Minister refused to exercise his discretion, while the decision-maker believed that the request could not be accepted due to a requirement that is not found in the statute. He improperly concluded that the Bulletin limited his discretionary power and, in doing so, he refused to exercise his discretion.
After noting various arguments of the ARQ suggesting that the Castros’ position “rested on fragile grounds”, he indicated that this did not matter because none of such considerations were addressed in the Decision. The Decision was remitted to the ARQ for reconsideration.
Neal Armstrong. Summary of Castro c. Agence du revenu du Québec, 2025 QCCS 3494 under ETA - s. 241(1).
LBL – Federal Court of Appeal finds that tobacco sales to a reserve Indian for flash resale to the ultimate customers were exempted under the Indian Act
A Sobeys subsidiary (“LBL”) sold $98 million of tobacco products during a 14-month period to a status Indian (Ms. MacNaughton) operating a variety store on an Indian reserve. As soon as LBL delivered the products to the store vicinity, and it received the cash consideration, the products were loaded onto the waiting trucks of customers, in turn, of Ms. MacNaughton.
Before going on to confirm that the sales by LBL were exempted under s. 87 of the Indian Act, Woods JA noted that the parties had framed the issue before her as one of whether Ms. MacNaughton was the recipient of the tobacco products, i.e., the one liable to pay the consideration therefor, and suggested that the s. 87 exemption instead required that the products have become the personal property of Ms. MacNaughton. She then stated:
I have concluded that it is sufficient for the purpose of this appeal to consider whether the Tax Court erred in finding that the Products were sold and delivered to Ms. MacNaughton. Quite simply, the “owner” and the “recipient” are bound to be one and the same person in this case.
On this basis, she concluded that the Tax Court had not made a palpable and overriding error in finding that the products had been sold and delivered by LBL to Ms. MacNaughton, given the evidence before the Tax Court that:
- the witnesses considered Ms. MacNaughton to be LBL’s client;
- the documentary evidence was largely supportive of that view; and
- the flash resales to the customers were a common type of sale.
Neal Armstrong. Summaries of Canada v. LBL Holdings Limited, 2025 FCA 186 under General Concepts – Ownership, Indian Act s. 87 and Federal Courts Act, s. 27(1.3).
Income Tax Severed Letters 5 November 2025
This morning's release of seven severed letters from the Income Tax Rulings Directorate is now available for your viewing.
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. Their descriptors and links appear below.
These are additions to our set of 3,361 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 issues a Memorandum on the purpose-built rental housing rebate
CRA has issued a new GST/HST Memorandum on the purpose-built rental housing rebate. Points include:
- The requirement to have commenced construction after September 13, 2023, is interpreted as commencing the excavation for the project after that time, so that a prior excavation-commencement date would disqualify even if there was a subsequent change of owner and in the basic nature of what was being constructed.
- A unit owned by the owner of a multiple-unit residential complex (MURC) would not have a qualifying residential rental use for the purposes of the prescribed property definition, so that such unit would be required to represent under 10% of the units in the MURC in order for the MURC to be prescribed property.
- The deemed substantial renovation rule under subsection 190(1), where all but not a portion of a building is converted from commercial use (e.g., office use) to residential use, can qualify as a substantial renovation for purposes of engaging the rebate. This assumes that the property was not in the process of being constructed and was not being used at all as a residential complex on September 13, 2023.
Neal Armstrong. Summaries of GST/HST Memorandum 19-3-9, Purpose-built Rental Housing Rebate, 3 November 2025 under ETA s. 256(3.1), Real Property (GST/HST) Regulations. s. 4(2), s. 4(2)(b), s. 3.
0808414 B.C. – Federal Court of Appeal finds that the proceeds of depreciable property were not reduced by assumed pension obligations
The taxpayer sold a contract-manufacturing business to an affiliated Canadian company. Although it conceded that the FMV of the (Class 29) machinery and equipment included in the sale would have been $56.5 million if sold alone, it argued that such FMV should be reduced by the estimated amount of the pension obligations assumed by the purchaser ($8.2 million) since the business was sold as a going concern.
After referring to Daishowa‑Marubeni, Webb JA stated:
[T]he pension obligations were not imbedded in the Equipment, they arose because the vendor had pension obligations to its employees. …
[I]n applying section 69 of the Act, the proceeds of disposition are not determined for the business per se, but rather separately for each particular asset comprising the business … that was sold. The pension obligations and any other liabilities or obligations assumed by the purchaser would be part of the consideration paid for the various assets. Such obligations and liabilities would not reduce the fair market value of the Equipment.
Neal Armstrong. Summary of 0808414 B.C. Ltd. v. Canada, 2025 FCA 193 under s. 69(1)(b).
Neal H. Armstrong editor and contributor