After noting that a “service is generally considered to be rendered in Canada when the individuals performing the service are physically present in Canada,” CRA confirmed that the usual Reg. 105 withholding rules would apply to a U.S. government department that rendered services in Canada in person, either directly or through a contractor hired by it.

CRA further stated that “in most circumstances we can envision, a treaty-based exemption appears to be likely,” which could ground an application for a waiver under s. 153(1.1).

Neal Armstrong. Summary of 12 November 2025 Internal T.I. 2025-1080641I7 under Reg. 105(1).

The US parent of the taxpayer (“EM Corp.”), and two other oil and gas companies (“BP Alaska” and “Phillips Alaska”) entered into an agreement (the “Project Agreement”) to together undertake a feasibility study for a pipeline extending from the Alaskan north slope through Canada to the lower 48 states. The following year, EM Corp. assigned (pursuant to the “PACA Agreement”) 68% (being an approximation of the portion of the pipeline that might be in Canada) of its 1/3 interest in the Project Agreement to a Canadian subsidiary (the taxpayer).

CRA denied the deduction by the taxpayer of its $36 million share of the feasibility study costs. It viewed the feasibility study as being for the benefit of the three Alaskan producers (so that they could find a way to sell their “stranded” natural gas on the Alaskan North Slope), and it seemed questionable for the taxpayer to instead bear the risk of the applicable portion of the costs not leading to an income-generating pipeline since, even if the pipeline project proceeded, its return on the pipeline would be limited to a regulated rate of return.

Lafleur, J., predictably rejected the Crown's position that the taxpayer did not bear its feasibility study costs in connection with a source of income: it had the prospect of earning income from the Canadian portion of any pipeline - and it could sell information acquired from the feasibility study, as in fact occurred.

She also rejected the proposition that the deduction was denied by virtue of the income-producing purpose test under s. 18(1)(a), noting in this regard that such purpose need not be the “exclusive, primary, or dominant purpose” and could be a secondary purpose.

Turning to transfer pricing, the primary position of the Crown was that ss. 247(2)(b) and (d) should be applied on the basis that the PACA Agreement was entered into by the parties solely to save tax, namely to provide a deduction to the taxpayer for its share of the feasibility study expenses, and that parties dealing at arm's length instead would have entered into a fee-for-services agreement (if any transaction would have been entered into at all), thereby resulting in the feasibility study costs of the taxpayer being nil.

In rejecting this position, Lafleur J. first found that the primary tax-benefit test in s. 247(2)(b)(ii) was not satisfied, stating:

[T]he primary purposes of the PACA Agreement were of a business and investment nature, being to avoid subjecting EM Corp. to Canadian tax and civil jurisdiction, and to allow the Appellant to advance its entitlement to the Project (including entitlement to data and information from the Project), outweighing the tax purpose for entering into the PACA Agreement.

In also finding that the PACA Agreement should not be recharacterized in accordance with ss. 247(2)(b)(i) and (d) as a fee-for-services agreement, Lafleur J noted that no terms and conditions had been proposed for such a fee-for-services agreement and that it would be a speculative exercise to determine how any terms of such an agreement would adjust for the quantum or nature of any amount. Furthermore, a fee-for-services arrangement would have been incompatible with the fundamental objective of EM Corp. to not have a permanent establishment in Canada.

In further finding that ss. 247(2)(a) and (c) should not be applied in the alternative to effect a downward adjustment to the feasibility study costs to zero, Lafleur J accepted that a potential pipeline owner would indeed undertake these types of activities to advance a potential pipeline to the regulatory application stage, and that the terms and conduct of the feasibility study accorded with the norms for such projects.

The Crown took the position that an amount equal to the feasibility study costs borne by the taxpayer was deemed to be a dividend subject to Part XIII tax pursuant to ss. 56(2) and 214(3)(a) on the basis, inter alia, that (i) such costs were paid for the benefit of EM Corp and (ii) by virtue of s. 246(1)(b), the payment of such costs would have been included in EM Corp's income if EM Corp had received the feasibility study costs directly.

Lafleur J. found, regarding (i), that such costs were paid for the taxpayer's own benefit and not for the benefit of EM Corp. and, regarding (ii), that s. 246(1)(b) could not be used in this manner to “feed” the application of s. 56(2), stating:

[I]t is not appropriate to use a provision, namely subsection 246(1), which is designed to catch the value of benefits conferred on a taxpayer not otherwise included in the taxpayer’s income under Part I, to satisfy requirements of a provision found under Part I, namely subsection 56(2).

The absence of a benefit to EM Corp. also signified that s. 246(1) could not be applied on a standalone basis (as contrasted to feeding s. 56(2)) – and even if there were such a benefit, this would not have given rise to a deemed dividend under s. 214(3)(a) given that subsection 246(1) “is not referenced in paragraph 214(3)(a).”

Neal Armstrong. Summaries of ExxonMobil Canada Resources Company v. The King, 2026 TCC 42 under s. 3(a), s. 18(1)(a) – Incurring an expense, income-producing purpose, s. 152(9), s. 247(2)(b), s. 247(2)(a), s. 15(1), s. 56(2), s. 214(3)(a), s. 246(1)(b), s. 152(4)(b)(iii), General concepts – onus and evidence.

CRA confirmed that interest earned by a Canadian resident on various types of accounts that were tax exempt or tax advantaged under French tax law would be included in computing the resident's income under the s. 12 rules, given the absence of any exemption under the Canada-France Income Tax Convention. The referenced accounts were the "livret jeune" (youth savings accounts), "livret bleu" (blue savings accounts), "livret de développement durable et solidaire" (sustainable and solidarity-based savings accounts) ("LDDS"), "compte épargne logement" ( home savings accounts) ("CEL"), and "compte capital expansion" (capital expansion accounts).

Furthermore, assuming the $100,000 cost amount threshold was exceeded, the taxpayer would be required to annually report such accounts in a T1135 form - except that, pursuant to s. 233.7, if the individual first became resident in Canada in a year, the individual was not required to provide the Form T1135 for that first year, notwithstanding s. 233.3. However, if the individual emigrated but then again became a resident of Canada in a subsequent year, the individual would be required to file the form for that subsequent year.

Neal Armstrong. Summaries of 22 August 2025 External T.I. 2021-0904251E5 F under s. 12(1)(c) and s. 233.7.

We have translated a further 6 CRA interpretations released yesterday and in September and August of 1999. Their descriptors and links appear below.

These are additions to our set of 3,501 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 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5^th of each month).