News of Note
3533158 Canada – Federal Court of Appeal leaves open the extent to which s. 296(4)(b) denies refund claims for old ITCs
Email this ContentCRA refused to process three GST/HST returns of the taxpayer on the basis that such returns had not been filed within the four-year ITC limitation period under s. 225(4)(b). The taxpayer ultimately brought a mandamus application before the Federal Court to compel the Minister to grant refunds in respect of the initial three quarters.
The Federal Court denied 353's motion on the basis, inter alia, that its ITC claims were denied by the plain words of s. 296(4)(b). In particular, s. 296(4)(b) denied a refund of an overpayment of tax (attributable to an ITC) if, on the assessment date, such ITC could not have been claimed on that date in a return (due to the s. 225(4)(b) 4-year limitation).
Roussel JA dismissed the taxpayer’s appeal, but on the alternate ground that there was no palpable and overriding error in the Federal Court’s exercise of its discretion to determine that an unexplained 15‑month period of inactivity between the taxpayer having its objection denied by CRA and bringing the Federal Court motion created an equitable bar to the issuance of an order of mandamus.
She refrained from commenting on the Federal Court’s interpretation of s. 296(4)(b) and stated (at para. 4) that her “reasons should not be construed as an endorsement of the Federal Court’s analysis or conclusions with respect to this issue.”
Neal Armstrong. Summary of 3533158 Canada Inc. v. Canada (the Attorney General), 2024 FC 1090 under Federal Courts Act, s. 18.1(2).
We have translated 8 more CRA severed letters
We have translated a CRA ruling and interpretation released last week and a further 6 CRA interpretations released in March and February of 2000. Their descriptors and links appear below.
These are additions to our set of 3,324 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 rules on a variation from a standard pipeline transaction
CRA ruled on an elegant post-mortem pipeline transaction.
The steps started in the usual way, with the estate to make a s. 86 exchange of its common shares of an investment corporation for preferred shares (and then subscribe for common shares) so that a portion of its preferred shares could be redeemed for a note so as to recover the balance of its ERDTOH and NERDTOH accounts and produce a capital loss that could be applied under s. 164(6) to the terminal year.
The estate was then to transfer all its shares of the investment corporation under s. 85(1) to a Newco in exchange for common shares of Newco.
After 12 months, Newco will reduce the PUC of its common shares by an amount equal to the PUC (apparently, all the PUC) of its common shares in consideration for the issuance of eight non-interest-bearing notes, which will not be repayable earlier than at specified successive quarterly intervals, commencing one day after the day of issuance in the case of the 1st note, and so on, so that the 8th note is not repayable before the 8th quarter following such issuance.
One year later, the investment corporation and Newco will be amalgamated to form Amalco.
Neal Armstrong. Summary of 2025 Ruling 2025-1052291R3 F under s. 84(2).
CRA finds that the heir of a deceased employee who became entitled to a tax-free pay adjustment should count the s. 152(4.2) 10-year claim period from the year of payment
In 2011, a pay equity settlement resulted in the deceased (who had died in 2008 and whose estate finished being administered in 2010) becoming entitled to a retroactive salary adjustment, which was paid later in 2011 by the employer to the sole beneficiary under the will (the heiress). The employer withheld income tax and issued a T4 for 2011 to the estate.
CRA agreed that the retroactive salary adjustment was not taxable to the deceased or the estate, since the pay equity settlement was not signed until after the death.
CRA further indicated that the tax withheld related under s. 153(1) to the year of payment and not to the year of death. Therefore, the taxation year for which the 10-year period provided for in s. 152(4.2) for requesting a refund of the withholding should be computed from the end of the 2011 taxation year of either the estate or the taxpayer's heir. Although it was not within CRA’s remit to determine which of these two should have received the adjustment, it would not object to the heiress being considered to have received the adjustment directly from the employer if she was entitled to the retroactive salary adjustment under the will.
Consequently, the 10-year period s. 152(4.2) period was to be computed from the end of her 2011 taxation year (the year of payment).
Neal Armstrong. Summary of 19 June 2025 External T.I. 2024-1045841E5 F under s. 152(4.2).
The Joint Committee comments on the August 15 draft legislation
Comments of the Joint Committee on the August 15, 2025 draft legislation include:
- Regarding proposed s. 149(13), it is recommended that a de minimis test be introduced so that small nonprofit organizations are not required to file an annual information return.
- The exclusion in the definition of exempt interest financing expense for borrowings that are used to acquire purpose-built residential rentals should be extended to: land that can reasonably be considered to be necessary for the use and enjoyment of such property, and outlays or expenses incurred by the borrower that are included in computing the cost to the borrower of the purpose-built rental or related land.
- S. 85.1(4) excludes rollover treatment for a drop-down described in s. 85.1(3) where there is a “relevant disposition” as part of the same series of the rolled-down shares, property substituted therefor or of property deriving any portion of its FMV from such shares or property – but with a narrow exclusion (i.e., carve-out) for dispositions of shares of a Canadian-resident corporation. Detailed examples are provided to illustrate the proposition that this carve-out rule in s. 85.1(4)(a)(i) (and a similar rule in s. 87(8.3)(b)) should be expanded to include dispositions of property by a Canadian taxpayer (given inter alia that this generates tax to the Canadian system), and dispositions of some types of non-share property such as indebtedness also should not be problematic.
- An exception should also be included in s. 85.1(4)(a)(i)(B) for non-share consideration described in s. 85.1(3)(a), so that the transfer of such non-share consideration (or property that derives its value from such non-share consideration) would not affect the application of s. 85.1(3).
- S. 85.1(4)(a)(ii)(B) describes one of the “bad” transferees for purposes of what is a relevant disposition, namely, a non-resident who is not at arm’s length with the taxpayer throughout the series, but with a safe-harbour carve-out for a controlled foreign affiliate (CFA) of the taxpayer as described in s. 17. This carve-out is problematic because it requires that such CFA not deal at arm's length with the taxpayer throughout the series. For example, where Canco acquires a foreign corporation (CFA2), which thus would not be a CFA at the commencement of the series, and then contributes CFA2 to an existing CFA, CFA2 would not be a CFA of Canco prior to the acquisition of CFA2 for purposes of the above carve-out.
- Where there is a merger of CFAs of Canco, there is no continuity rule deeming the merged corporation to be a continuation of the predecessors. As a result, it could not be considered to be an s. 17 CFA for purposes of the portion of the series preceding such merger.
Neal Armstrong. Summaries of Joint Committee, “August 15, 2025 Legislative Proposals,” Submission of the Joint Committee dated 15 September 2025 s. 149(13), s. 18.2(1) – EIFE, – ATI – D(b), s. 18.2(20). s. 126(4.7), s. 85.1(4)(a)(ii) and s. 85.1(4)(a)(ii)(B).
Toews – Tax Court of Canada finds that an assessment to deny a leveraged donation was statute-barred because CRA could not now substantiate s. 237.1(7.4) penalties
The Minister assessed the taxpayer to fully deny his charitable donation claim for his 2008 taxation year respecting his participation in a leveraged donation scheme (the “Scheme”). This assessment was made in reliance on s. 237.1(6.1), which prohibited a claim by a person in respect of a tax shelter where any person was liable to a penalty under s. 237.1(7.4) which was unpaid (here, four persons had been so assessed) and was made beyond the normal reassessment period in reliance on s. 237.1(6.2), which provided that otherwise statute-barred assessments could be made as necessary to give effect to s. 237.1(6.1). S. 237.1(7.4) provided that every person who, whether as principal or as agent, sells, issues or accepts consideration in respect of a tax shelter before the issuance of a tax shelter identification number (here, none was ever issued) is liable to a specified penalty.
Bodie J found that the Scheme was a tax shelter and, in particular, a gifting arrangement for which the taxpayer incurred a “limited-recourse debt”, as determined under s. 143.2(6.1) given that a certain Mr. Ciccone had told the taxpayer that he would not have to repay the loan made to him. However, although all of the four persons had been assessed for the s. 237.1(7.4) penalty, Bodie J found that the Crown had failed to establish that they were “liable” for such penalty, i.e., had fulfilled the requirements for its imposition.
In particular, although Mr. Ciccone may have promoted the Scheme, there was not real evidence of him (or the other three) “selling” anything, a word which should be “limited to a transfer or exchange for a price and should not encapsulate a meaning comparable to the word ‘promotes’.” There also was a paucity of specific evidence as to the involvement of the four in “issuing anything” or “accepting consideration.”
As the Crown had not established that any of the four was liable to the s.237.1(7.4) penalty, the Minister had not been entitled to rely on s. 237.1(6.2) to reassess beyond the normal reassessment period – so that the taxpayer retained his credit for the full leveraged donation amount.
Neal Armstrong. Summary of Toews v. The King, 2025 TCC 123 under s. 237.1(7.4).
Income Tax Severed Letters 12 September 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Pintal – Court of Quebec finds that the work space percentage of home expenses was based only on the actual hours of business use
The taxpayer operated a daycare center in the basement of the home of her and her partner and, following their move to a second home, the daycare was operated in the basement and part of the first floor of the second home.
She claimed expenses (such as utilities, insurance, maintenance, municipal taxes, and mortgage interest) relating to the use of the residence, based on the relative daycare floor area of 30.2% and 38.5% for the two homes, respectively. Revenue Quebec reduced these deductible expense proportions to 7.5% and 9.6%, respectively, on the basis that the daycare spaces had annual business-use hours of 9.5 hours per day for 228 days of the year which, expressed as a percentage of the total hours in the year, should be applied to the above floor-area percentages.
In confirming the application of the Revenue Quebec percentages, Huppé JCQ stated:
Whether or not she chose to use the spaces dedicated to the daycare for personal purposes does not change the fact that these spaces were located in the very place where she lived and were immediately available to her if she wished. Those spaces were, first and foremost, a residence. It was only incidentally that they also served for daycare during certain specific periods.
He fully confirmed her claims for various other expenses such as food, furniture costs and expenses for taking the children on outings.
Neal Armstrong. Summary of Pintal v. Agence du revenu du Québec, 2025 QCCQ 2913 under s. 18(12).
Franco-Nevada settles its transfer-pricing dispute on the basis of no FAPI, and 30% mark-up for its management charges, re its Barbados and Mexican subsidiaries
Franco-Nevada has settled its appeal of CRA reassessments of its 2013 to 2019 taxation years in respect of its Barbados and Mexican subsidiaries on the basis that:
- it will not be required to recognize any FAPI in respect of those subsidiaries for those taxation years; and
- the service fees charged by Franco-Nevada for certain services provided to those subsidiaries will be adjusted to increase the markup applied to Franco-Nevada's cost of providing those services from the current range of 7% to 20%, to 30%.
Franco-Nevada will not be subject to tax on the additional service fees for those years due to the application of non-capital losses.
Neal Armstrong. Summary of 11 September 2025 Press Release of Franco-Nevada Corporation entitled “Franco-Nevada Reaches Settlement on Canadian Tax Disputes” under s. 247(2).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in March of 2000. Their descriptors and links appear below.
These are additions to our set of 3,316 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).
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Neal H. Armstrong editor and contributor