News of Note
CRA indicates that a s. 127.46(12) top-up amount to union pay levels can be “paid” through the worker taking additional vacation days
Email this ContentAn incentive claimant with a (clean economy) “specified property” project was required to pay a “top-up amount” under s. 127.46(12) after CRA on audit determined that a non-unionized covered worker had been paid less than the prevailing union wage level as articulated in s. 127.46(3)(b)(i)(B).
CRA indicated that the top-up amount could be “paid” in the form of the covered worker taking additional vacation days, and that the payment would be considered to occur (e.g., for payroll source deduction purposes) when those vacation days were taken rather than when the vacation day credit was granted.
Neal Armstrong. Summaries of 2024-1043251I7 under s. 127.46(11) and s. 127.46(14).
CRA indicates that the BC Home Flipping Tax cannot be deducted in computing gain on the flip
In general, the “BC Home Flipping Tax” is imposed where a residential property located in B.C. that was owned for fewer than 730 days is disposed of for proceeds that exceed the cost of acquiring the property and other allowed costs.
CRA indicated that if the disposition occurred on income account, the tax did not qualify by virtue of s. 18(1)(a) for deduction in computing the profit given inter alia that “the expense appears to be incurred only if there is profit” and it “is not incurred for making the disposition but is rather incurred as a consequence of making the disposition.”
Similarly, if the disposition occurred on capital account (keeping in mind the narrowing of this field by virtue of s. 12(13)), it did not qualify as a disposition expense under s. 40(1)(a)(i) given inter alia that it “is incurred not in making the disposition, but as a consequence of making the disposition” and, therefore, is not “incurred for the purpose of making the disposition.”
Neal Armstrong. Summaries of 12 June 2025 External T.I. 2025-1051441E5 under s. 18(1)(a) – income-producing purpose and s. 40(1)(a)(i).
Halvorson – Tax Court of Canada finds that severe sleep apnea did not entitle an individual to the disability tax credit
The taxpayer, who suffered from severe obstructive sleep apnea, was required to use a continuous positive airway pressure (CPAP) device at night. He maintained that he was eligible for the disability tax credit on the basis inter alia that he satisfied the requirement in s. 118.3(1)(a.1)(ii) that he spent at least 14 hours per week on therapy in the guise of spending over two hours per night trying to fall asleep or back to sleep after sleep disruption.
In finding that such time did not qualify under s. 118.3(1.1)(a) as being time "spent on activities that require the individual to take time away from normal everyday activities in order to receive the therapy," Derksen J.A., found that those quoted expressions did not include falling or trying to fall asleep, which was a normal everyday activity.
Neal Armstrong. Summaries of Halvorson v. The King, 2025 TCC 124 under s. 118.3(1.1)(a) and s. 118.3(1)(a.1)(i).
GST/HST Severed Letters January 2025
This morning's release of six severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their January 2025 release) is now available for your viewing.
Income Tax Severed Letters 24 September 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
D'Arcy – Tax Court of Canada finds that a use of PUC-averaging to increase the PUC of individuals’ shares with a stepped-up ACB was abusive
The taxpayers (a couple) transferred their shares of Opco to a new holding company in consideration for preferred shares of Holdco at s. 85(1) agreed amounts that used up lifetime capital gains exemption balances. Stopping there, s. 84.1 would have limited the PUC of the preferred shares to the nominal PUC of the transferred shares. However, they also caused Opco to transfer significant assets to Holdco on an s. 85(1) basis in consideration for Holdco preferred shares of the same class, so that with PUC-averaging, the PUC of the taxpayers’ shares increased. Several years later, they used their PUC balance to eliminate shareholder loan advances that otherwise would have been included in their income under s. 15(2).
Russell J concluded that these transactions “inflated” the PUC of their shares to amounts that did not reflect any capital investment made by them, so that the extraction of such PUC constituted abusive surplus-stripping (in particular, abuses of s. 84.1 and the PUC-averaging rules). He rejected a submission that the overarching purpose of the series of transactions was creditor-proofing, noting inter alia that the this objective could have been accomplished without Holdco issuing shares of the same class to both Opco and the taxpayers.
Accordingly, he confirmed the GAAR assessments to generate deemed dividends that arose once the PUC-averaging was ignored.
Neal Armstrong. Summary of D'Arcy v. The King, 2025 TCC 128 under s. 245(4).
3533158 Canada – Federal Court of Appeal leaves open the extent to which s. 296(4)(b) denies refund claims for old ITCs
CRA 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).
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