Priority Foundation appealed the publication of a notice revoking its charitable registration, made on the basis that it had been using its funds to make donations to entities that were exempted from U.S. taxation under Code s. 501(c)(3) but which were not registered charities and qualified donees. It relied on Art. XXI(7) of the Canada-U.S. Income Tax Convention (the “Convention”):

For the purposes of Canadian taxation, gifts by a resident of Canada to an organization that is a resident of the United States, that is generally exempt from United States tax and that could qualify in Canada as a registered charity if it were a resident of Canada and created or established in Canada, shall be treated as gifts to a registered charity; however, no relief from taxation shall be available in any taxation year with respect to such gifts (other than such gifts to a college or university at which the resident or a member of the resident's family is or was enrolled) to the extent that such relief would exceed the amount of relief that would be available under the Income Tax Act if the only income of the resident for that year were the resident's income arising in the United States.

The numerous reasons of Roussell J.A. for rejecting the submissions of Priority that Art. XXI(7) required its donations to be treated as if made to qualified donees included:

• Although the current version of Art. XXI(7) notably had been broadened from the 1956 version by replacing a reference to “the computation of taxable income” by a reference to "for the purposes of Canadian taxation," this did not establish “that the phrase ‘for the purposes of Canadian taxation’ was intended to be all-encompassing, such that it would impact the requirements for ongoing charitable registration under the ITA for Canadian registered charities”.
• If Art. XXI(7) had the effect of deeming a U.S. 501(c)(3) entity to be a registered charity and therefore a qualified donee, this would imply that such a donee was required to keep Canadian records; and It would be “highly unusual that the Minister's powers of revocation mentioned in paragraph 230(2)(a) would extend to U.S. 501(c)(3) entities”.
• A reading of the U.S. Treasury Technical Explanation and an IRS guidance notice suggested that the drafters of the Tax Convention did not envisage that it would go as far as interfering with each country's authority to determine the statutory requirements a registered charity must meet to maintain its charitable registration; and supported the view that “the purpose of the treaty was to provide relief from the imposition of taxes and not to regulate the conditions an organization must satisfy to maintain its charitable registration in the organization’s resident state”.
• Furthermore, Priority's submission, if correct, would suggest that a “Canadian resident individual or corporate taxpayer with no U.S. income wishing to donate to a specific U.S. charity to whom Priority made gifts could have circumvented the U.S. income limitation by making the gift to Priority” which “could not have been the result that was intended by the contracting states”.

Neal Armstrong. Summary of Priority Foundation v. Canada (National Revenue), 2025 FCA 180 under Treaties – Income Tax Conventions – Art. 21.

CFA1 (a Country A resident) wholly owned CFA2 (a Country B resident) and was wholly owned by Canco.

Pursuant to s. 128.1(1)(b), at the time immediately before the deemed taxation year of CFA1 arising on the continuance (the “immigration”) of CFA1 to Canada (the “Last FA Year”), CFA1 was deemed to dispose of the shares of CFA2 for proceeds equal to their FMV at that time of $100. The resulting $90 capital gain on the shares of CFA2, which were not excluded property, gave rise during the Last FA Year to FAPI of CFA1 that was included in Canco’s income.

If there subsequently was an actual disposition of the shares of CFA2 by CFA1, CFA1 would be liable to tax of 30% in Country B on the capital gain computed based on the (low) pre-immigration costs of the shares to it of CFA2, thereby likely resulting in the same gain being taxed a second time. In particular, as the ACB of the CFA2 shares of CFA1 would have been stepped-up under s. 128.1(1)(c), on such sale CFA1 would not be subject to tax in Canada on the capital gain accrued prior to the immigration, and would not generate a foreign tax credit under s. 126 for the Country B tax paid on that accrued gain unless it had qualifying income from Country B sources. Further, since CFA1 ceased to be a foreign affiliate of Canco upon the immigration, the Country B tax paid on the actual disposition of the CFA2 shares would not be FAT in respect of Canco.

In addition to the FAPI inclusion under s. 128.1(1)(b) to Canco, s. 128.1(1)(d)(ii) required the inclusion, in computing the FAPI of CFA1 for the Last FA Year, of the amount prescribed under Reg. 5907(13), which would include any undistributed taxable surplus of CFA1, as reduced by its net earnings in respect of the FAPI for the Last FA Year from the deemed disposition under s. 128.1(1)(b). In these circumstances, where the only relevant FAPI was from the gain to CFA1 on the CFA2 shares on the continuance, there would be no net amount to add under Reg. 5907(13).

Neal Armstrong. Summaries of 22 August 2025 External T.I. 2019-0826681E5 under Reg. 5907(13), ITA s. 91(4) and s. 128.1(1)(b).

The appellant and his wife agreed in January 2017 with a developer to purchase a still-to-be-constructed condominium unit. They took possession in June 2020 and began renting the unit out in September 2020.

Regarding the appellant’s new housing rebate claim, Friedlander, J. found that a qualifying relation, namely their son (Michael), age 23, had satisfied the first-occupancy test in ETA s. 254(2)(g) given that he had, in fact, slept every night in the condo unit until he decided to return to the family home in Vaughan about 2 ½ months later, and had furnished the unit (albeit, sparsely) while staying there. He was more than “merely ‘camping’” there.

However, the rebate nonetheless was not available because s. 254(2)(b) was not satisfied, i.e., Friedlander, J. doubted that their intention at the time of the purchase agreement was that Michael would use the unit as his primary place of residence. For instance, there was the significant distance between the family home in Vaughan (where Michael was staying until 2020) and the unit’s location in east Toronto, their close family ties, and the absence of any reason to consider that he would work near the condo (and, in fact, he ended up working in the Vaughan area).

Neal Armstrong. Summaries of Elhav v. The King, 2025 TCC 132 under ETA s. 254(2)(b) and s. 254(2)(g).

A discretionary trust received dividend income, which it allocated and distributed to one of its beneficiaries ("Father"). In an attempt to avoid a change in control of the corporation held by the trust due to an associated redemption of shares of the corporation held by family members, the trustees entered into an agreement with two beneficiaries, who were sons of Father, under which the trustees undertook to exercise their powers according to the instructions given by the sons and to not make decisions without their prior consent – and to resign in the event of disagreement with the sons' instructions.

However, this caused CRA to conclude that the trustees had abdicated the exercise of their powers to the sons, so that the sons had become de facto trustees, contrary to Art. 1275 of the Civil Code. This, in turn, signified that the purported trust distributions were void, so that no amount was deductible under s. 104(6).

The Tax Court found that, notwithstanding this agreement, the trustees continued to exercise their powers as trustees and that the sons did not, in fact, act as trustees. Thus, there was no violation of Art. 1275.

Before dismissing the Crown’s appeal, Goyette JA first noted that the terms of the agreement with the sons were ambiguous, and then indicated that the Tax Court was called upon to take the actual facts into account, so that it was entitled to decide based on its finding that in fact their had been no abdication of the exercise of trustee powers. Furthermore, no palpable and overriding error in the Tax Court’s assessment of the facts could be identified.

Neal Armstrong. Summaries of The King v. Fiducie Historia, 2025 CAF 177 under s. 104(6) and s. 171(1).