News of Note
Jewish National Fund - Federal Court of Appeal states that an allegation of CRA bias must be based on a tangible concern based on potentially credible evidence
Email this ContentThe Jewish National Fund of Canada sought to set aside the Minister's decision to revoke its status as a registered charity, alleging inter alia that such decision was tainted by bias, relating to a weighty and illegitimate pressure campaign against it.
It moved for an order allowing its appeal on the basis that the Minister had disobeyed some of the search terms in the June 10, 2025 order of the Court, which required a supplementary search of CRA's records, including records of the Charities Directorate, to ensure the disclosure of, among other documents, any further materials within CRA's possession that were not included in the certified tribunal record and that were “in respect of the allegation that the Minister was biased,” including any “relevant material” in the possession of CRA “relating to communications from and to the public”.
Stratas JA indicated that the Court could make a search and production order where there is an “air of reality” to an allegation of maladministration, i.e., ”a tangible concern supported by some circumstantial or direct evidence” that is “capable of being believed” and there was proportionality, as assessed by the court, between the time, expense and court resources involved in carrying out the order and the importance of the matters at stake. He did not comment directly on the vagueness of the “materials … in respect of the allegation … [of] bias …” criterion in the order, but stated: “Regardless of whether it was issued in accordance with the principles set out in these reasons, it must be followed.”
Stratas JA found that the Minister's conduct (described below) did not warrant granting the appeal, as there was “no egregious conduct amounting to a serious abuse of process where no remedies will do”. However, the Fund persuaded him that the Minister had not fully complied with the Court's June 10, 2025 order:
- The Fund’s cross-examination of the CRA affiant indicated that she did not address a supplementary search request to any of the Tax and Charities Appeals Directorate, the Public Affairs Branch, the National Leads Centre, the Commissioner's Office, the Deputy Commissioner's Office, or the Minister's Office, and it was plausible that these departments might possess relevant documents.
- The Fund, in its prior motion for search and production, had referred to an email chain discussing a potential meeting between the Commissioner and another senior employee regarding the Fund's case. While the Minister had directed the participants in the chain to search for records of this meeting, no such request was made of the Commissioner or any other purported attendee of the meeting and it should now do so.
- The affiant testified that CRA's standard practices for searches had been followed but was unable to describe those practices or confirm that they had indeed been followed.
Accordingly, the Minister was ordered to conduct a further search for certain documents, confirm the adequacy of certain previous searches, and provide a further affidavit detailing the nature and scope of the searches conducted, with the Fund to be granted the opportunity to cross-examine on this affidavit.
Neal Armstrong. Summary of Jewish National Fund of Canada Inc. v. Canada (National Revenue), 2026 FCA 63 under Rule 317.
CRA declines to pronounce on whether a mortgage investment corporation would be a listed financial institution for FATCA and CRS purposes
Regarding whether a mortgage investment corporation (MIC) was a listed financial institution as defined in s. 263(1) (which is relevant for both FATCA and CRS reporting purposes), CRA first indicated that mortgages would generally be considered “financial instruments” and “financial assets”.
The MIC could be a listed financial institution under:
- para. (j) of the definition in s. 263(1) if it was authorized under provincial legislation to engage in the business of dealing in securities or other financial instruments, or to provide portfolio management, investment advising, fund administration, or fund management services; and
- under para. (k) thereof if it was managed by such an entity and was represented or promoted to the public as a collective investment vehicle or as a similar investment vehicle established to invest in financial assets.
CRA indicated that whether the definition would so apply was a question of fact.
Neal Armstrong. Summary of 12 November 2025 Internal T.I. 2022-0955411I7 - Application of Parts XVIII and XIX to MICs under s. 263(1) - listed financial institution - (k).
CRA adds 3 examples to its listing of abusive transactions including a blanket treaty-shopping example
A CRA webpage providing examples of transactions to which it would apply GAAR, has been updated by adding three examples (briefly summarized below):
Wuswig-based transaction
After Canco received exempt dividends from a foreign affiliate (Subco), Subco continues into Canada, the parent of Canco subscribes for preferred shares of Subco, and Subco is wound up under s. 88(2) to trigger a capital loss to Canco that is not subject to the stop-loss rules in ss. 93(2) and 93(2.01).
Treaty shopping)
A person who is not entitled to the benefits of a tax treaty uses an intermediary entity entitled to such benefits to indirectly obtain those benefits, resulting in a reduction of the amount of withholding tax otherwise payable under Part XIII.
Before giving the example quoted above (and without referencing Alta Energy), CRA stated that it “may apply the GAAR even where a non-resident would otherwise satisfy all of a treaty’s relevant provisions, including … limitation on benefits provisions and, any other anti-avoidance provision, including the principal purpose test in Article 7(1)” of the MLI.
Loss trading, Deans Knight style
CRA essentially summarized the facts in Deans Knight, and further stated that it “will consider the application of the GAAR to transactions or arrangements designed to avoid the restriction of non-capital loss carryovers for a corporation (Lossco) that would arise on an acquisition of control by a person or a group of persons (notwithstanding the composition of such group).”
Neal Armstrong. Summary of CRA Webpage, General anti-avoidance rule (GAAR), 1 April 2026 under s. 245(4).
Income Tax Severed Letters 1 April 2026
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA amends Folio S5-F2-C1 to permit disproportionate treaty-based claims for foreign partnership taxes
Today, CRA made some additions and changes to Folio S5-F2-C1, Foreign Tax Credit. One addition related to determining the amount of tax paid by a foreign partnership that should be treated as having been paid by a resident partner for foreign tax credit purposes.
Para. 1.39 continues to state:
The taxpayer's appropriate share of the foreign taxes paid is generally the same proportion of the total foreign taxes as the taxpayer's share of income is to the total income of the partnership.
However, CRA has now added para. 1.39.01, which states:
However, in certain circumstances a partner's share of the total tax paid by a partnership may be calculated differently. Where the amount of foreign tax is computed at the partnership level by reference to each member’s treaty entitlement and the particular partnership agreement adjusts the income allocation, the taxpayer’s pro rata share of the foreign taxes payable by the partnership is the partner’s pro rata share of the taxes that would be owing without taking the treaty into account, less the reduction attributable to the particular partner’s treaty entitlement.
CRA also added para. 1.45.1, which states that in the above situation, the documentary support “should demonstrate that the sum of the amounts of foreign tax considered to be paid by each member of the partnership does not exceed the total amount of foreign tax actually paid by the partnership.”
Neal Armstrong. Additional summary of Folio S5-F2-C1 - Foreign Tax Credit under s. 126(1).
Kelly – Tax Court of Canada prepares on its own initiative to strike the remaining appeals re a donation program as an abuse of process
Graham J, who was the case manager for the remaining appeals respecting the Global Learning and Gifting Initiative (GLGI) donation program, decided on his own initiative that he was providing each appellant with the opportunity to give written submissions as to why their appeal should not be struck for abuse of process (along with a Crown response opportunity), after which he would decide whether or not to strike each appellant's appeal, based solely on the written submissions.
In this regard, Graham J noted the consistent failure to date of taxpayers’ appeals respecting the GLGI program and stated:
And yet a small number of appellants persist. They present no new grounds for appeal, no new facts, no new arguments, nothing.
Regarding his proceeding on his own initiative, he stated:
Although an allegation of abuse of process is usually raised by the opposing party, section 53(1) [of the Rules] allows the Court to raise it on its own initiative.
While abuse of process often refers to something that one party or the other has done in an appeal, it can also be about protecting the judicial process. Relitigating the same issue over and over wastes judicial resources and, more importantly, risks undermining the credibility of the judicial process.
Elaborating on that last point, he stated:
If, in the face of all of the prior GLGI decisions, a judge were now to somehow find that one of the Appellants had donative intent, this inconsistent result could seriously undermine the credibility of the judicial process.
Neal Armstrong. Summary of Kelly v. The King, 2026 TCC 53 under Tax Court of Canada Rules (General Procedure), s. 53(1)(c).
We have translated 6 more CRA severed letters
We have translated a CRA ruling released two weeks ago and a further 5 CRA interpretations released in July of 1999. Their descriptors and links appear below.
These are additions to our set of 3,519 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 5th of each month).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2026-03-18 | 2025 Ruling 2025-1054291R3 - Post-Mortem Hybrid Pipeline | Income Tax Act - Section 84 - Subsection 84(2) | hybrid double pipeline with a choice between amalgamating or winding up |
| 1999-07-23 | 7 July 1999 External T.I. 9828165 F - TRANSFERT DE BIENS À UNE SOCIÉTÉ | Income Tax Act - Section 74.4 - Subsection 74.4(2) | taking back non-cumulative preferred shares may be indicative of a targeted main purpose |
| 30 June 1999 External T.I. 9911555 F - CR POUR ACTIONNAIRE-DIRIGEANT | Income Tax Act - Section 248 - Subsection 248(1) - Salary Deferral Arrangement | foregoing by a shareholder-officer of significant salary in exchange for an RCA contribution, may be an SDA | |
| 1999-07-09 | 24 June 1999 External T.I. 9830665 F - DIVIDENDE EN ACTIONS PRIV ET PAR BILLET
quoted in 2011-0415891E5 F (translated), reversed by 2018-0780071C6
|
Income Tax Act - Section 248 - Subsection 248(28) | double taxation of s. 55(2) gain on dividend in kind avoided by excluding gain on subsequent sale of the dividended property |
| Income Tax Act - Section 52 - Subsection 52(1) | cost of note increased only by the taxable capital gain recognized under s. 55(2) in respect of its issuance as a dividend in kind | ||
| Income Tax Act - Section 52 - Subsection 52(3) - Paragraph 52(3)(a.1) | nil cost of preferred shares issued on dividend in kind by virtue of s. 52(3)(a.1) since deemed not to be a dividend by s. 55(2) | ||
| 28 June 1999 External T.I. 9912585 F - ALLOCATION DE RETRAITE | Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance | whether transfer between two companies entails termination of employment turns on whether they are affiliated/ ordinary meaning of affiliated | |
| 30 June 1999 External T.I. 9912605 F - APPLICATION DE 56(11) À L'EMPLOYEUR | Income Tax Act - Section 56 - Subsection 56(11) | the recipient of the amount subject to s. 56(11) need not have held the employment, so that it could apply to an employer |
Moseley – Tax Court of Canada finds that the ETA s. V-I-9(2) exemption does not apply to a former commercial property and that it could not challenge a retroactive GST de-registration
At the time the appellant acquired a former restaurant (now vacant), he was registered for GST purposes, so that he was not charged GST. After concluding that the sale was not exempted under s. V-I-2 et seq. because the property did not contain a “residential unit,” Rabinovitch J also concluded that the exemption under s. V-I-9(2) (commonly thought of as the “vacant land” exemption) did not apply on the basis that the (vacant) restaurant should be considered to be “used” in commercial activity “immediately before” the transfer of its ownership because it had been “last used” in commercial activity. He indicated that the opposite conclusion would have meant that the property could have been sold on an exempt basis even though the vendor would have been able to claim ITCs regarding its use in the former restaurant business, which would be contrary to the scheme of the ETA as noted by the Supreme Court.
After the sale, Revenu Québec retroactively cancelled the appellant’s registration, effective to before the time of the sale. Rabinovitch J was skeptical that Revenu Québec had the power to cancel a taxpayer's registration retroactively. However, this determination was not within his jurisdiction, so it was necessary for him to proceed on the basis that the appellant's registration had been retroactively invalidated.
He concluded that, even though the appellant thus was not registered at the time of his acquisition and was not charged GST by the vendor, the direct assessment of him by Revenu Québec was valid under s. 296(1)(b).
Note that this may have been an illusory victory for the Crown as ETA s. 278(2) likely indicates that the appellant would not be required to pay that assessment (see Royal Bank).
Neal Armstrong. Summaries of Moseley v. The King, 2026 TCC 59 under ETA s. V-I-9(2)(a), s. 242(1), s. 141.1(3), s. 296(1)(b) and s. 280.1.
Owens Corning – Tax Court of Canada finds that its lack of jurisdiction over downward transfer-pricing adjustments applies to FAPI adjustments
The Minister reassessed to increase the foreign accrual property income (FAPI) of the taxpayer by denying the deduction of a royalty paid by a controlled foreign affiliate (“Coop2”) of the taxpayer to a non-arm's length holder of intellectual property. The taxpayer agreed that the decisions in Dow Chemical and Meglobal established that a downward transfer pricing adjustment to decrease the effect of the above adjustment would require a discretionary decision of the Minister under s. 247(10) over which the Tax Court had no jurisdiction. However, the taxpayer argued that it was not seeking a downward pricing adjustment but rather simply looking to properly calculate its FAPI.
In finding that there was no merit in "this attempted recharacterization," Graham J stated:
If, as part of calculating its income, the Appellant wanted to use subsection 247(2) to make a downwards transfer pricing adjustment to its FAPI, then it was up to the Appellant, not Coop2, to apply to the Minister for permission to do so. The Appellant faced the exact same restrictions on downward transfer pricing adjustments that any Canadian resident faces when calculating their income.
Neal Armstrong. Summaries of Owens Corning Canada Holdings ULC v. The King, 2026 TCC 60 under s. 247(10) and s. 95(2)(f).
CRA adopts the position that partnerships formed under provincial law are resident in Canada for CRS purposes
On December 19, 2025, the CRA amended its “Guidance on the Common Reporting Standard” (CRS) to add a position that a partnership will be considered to be resident in Canada for purposes of the CRS rules if it was formed under provincial law, or all its partners were residents. In particular, the CRA amended paragraph 3.32 to include the following italicized words:
A partnership will be considered as a Canadian resident partnership if:
- All the partners, including all end members, are resident in Canada;
- The place of effective management and control of a partnership's business is situated in Canada; or
- The partnership was formed under the laws of a province or territory.
It is common for non-residents to choose an Ontario or other provincial limited partnership as a convenient vehicle to invest in non-Canadian assets. In addition, a limited partnership might have only Canadian partners, including a general partner that was deemed to be resident in Canada due to its Canadian incorporation but with its central management and control (and that of the partnership) outside Canada. These change will, in many situations, render such partnerships “Canadian financial institutions” for CRS purposes, so as to result in reporting obligations under those rules. No change has been made to the equivalent FATCA guidance, giving rise to a more pronounced dual regime.
An ad hoc group has represented to CRA that inter alia it is appropriate to provide grandfathering and transitional relief given that such partnerships would have had no notice for most or all of 2025 that they should have been collecting certifications from their investors.
Neal Armstrong. Summaries of Guidance on the Common Reporting Standard, Part XIX of the Income Tax Act, 19 December 2025 under s. 270(1) – investment entity, Canadian financial institution – (a), active NFE – (a), s. 263(1) – LFI – para. (k) and s. 277(4).
Neal H. Armstrong editor and contributor