CRA indicates that condo inventory did not qualify as “goods” under s. 95(3)(b)

Where a foreign subsidiary (“FA”) provides services to its Canadian parent (“Canco”) for which the fees are deductible in computing Canco’s Canadian business income, the net fee income of FA therefrom generally will be deemed under s. 95(2)(b) to be foreign accrual property income (FAPI) of Canco. However, there is an exclusion from the application of s. 95(2)(b) under s. 95(3)(b) where the services of FA are “performed in connection with the purchase or sale of goods.”

CRA found that the s. 95(3)(b) exclusion was unavailable where FA was providing marketing services to Canco respecting the sale of Canadian residential condominiums by Canco in the course of its Canadian business, given its conclusions that real estate inventory did not qualify as “goods.”

Neal Armstrong. Summary of 17 May 2022 IFA Roundtable, Q.3 under s. 95(3)(b).