Income Tax Severed Letters - 2026-01-14

Principal Issues: 2025 APFF Annual Conference CRA Roundtable Q.2: A Canadian corporation (Canco) has a loan payable to a related non-resident corporation (NRco). The loan is interest bearing, but pursuant to the thin-cap rules, the interest is not deductible for Canco and is being recharacterized as dividend paid to NRco. Canco did not withhold and deduct any amount in respect of the interest during the year, but remitted Part XIII tax in March of the following year along with filing a NR4 form.
1) Can a penalty under subsection 227(9) be imposed on Canco in the circumstances?
2) Can a penalty under subsection 162(7) be imposed on Canco in the circumstances?

Position: 1) No.
2) No.

Reasons: 1) Wording of subsection 227(9), no amounts were withheld or deducted in the first place.
2) Wording of subsection 162(7), and failure to withhold and deduct should not be subject to a penalty in the circumstances, considering subsection 227(8.5).

Principal Issues: 1. Whether CRA will grant interest and penalties relief pursuant to subsection 220(3.1) in cases where a taxpayer choses the current-year method to calculate its tax instalments and these obligations are increased because of the taxpayer's death. 2. If yes, whether the relief would be granted in respect of the payment of all or part of the tax instalments.

Position: No position.

Reasons: General comments provided.

Principal Issues: Whether simultaneous transfers of two subject corporations to one purchaser corporation, one subject corporation being a relevant group entity to the other, would cause either disposition to fail to satisfy the requirements of paragraphs 84.1(2.31)(a) and 84.1(2.32)(a)?

Position: Each of the simultaneous dispositions, as the ones contemplated in the proposed scenario, would satisfy the conditions in paragraphs 84.1(2.31)(a) and 84.1(2.32)(a).

Reasons: The Law and prior positions.

Principal Issues: Application of the CRA's new positions outlined in the safe income paper.

Position: The new positions apply for taxation years that begin after November 28, 2023.

Reasons: Position in the safe income paper

Principal Issues: 2025 APFF Annual Conference CRA Roundtable Q.10: Can the election under subsection 220(4.5) allow an individual to defer the payment of alternative minimum tax triggered by the application of paragraph 128.1(4)b) in the individual's emigration year ?

Position: Yes.

Reasons: Wording of the Act.

Principal Issues: Whether section 51 would apply upon the conversion of the SAFE into shares of the issuer?

Position: No general position, as there does not seem to be one universal SAFE agreement. If the SAFE is not qualified as a share under the relevant corporate laws and if it does not reflect a debt of the issuer, having a principal amount payable and bearing the typical hallmarks of a debt obligation, the Agency will generally take the position that section 51 is not applicable. The legal qualification of the SAFE will largely determine its proper treatment upon conversion, including the occurrence or non-occurrence of a disposition under subsection 248(1) or section 49.1 of the Act.

Reasons: The Law.

Principales Questions: Est-ce qu'un encaisse provenant de ventes encaissées à la signature d'un contrat à long terme est un élément d’actif utilisé principalement dans une entreprise exploitée activement ?

Position Adoptée: Question de fait.

Raisons: Le bien doit être utilisé ou risqué dans l’entreprise et satisfaire à une exigence nécessaire à l’exploitation de l’entreprise. En général, la gestion financière prudente d’une entreprise peut requérir que des actifs à court terme (tels que des liquidité) qui excèdent le passif à court terme est un élément pouvant être considéré dans un examen dont l’objet est de déterminer si un bien était un élément d’actif utilisé principalement dans une entreprise exploitée activement. Toutefois, une accumulation permanente de liquidités dépassant les besoins raisonnables de l’entreprise en ce qui a trait à son fonds de roulement ne sera généralement pas considérée comme étant un d’actif utilisé principalement dans une entreprise exploitée activement.

Principales Questions: 1. Le paragraphe 12(12) s’applique-t-il lorsqu’une offre d’achat est acceptée moins de 365 jours après l’acquisition initiale du bien, qu’un bail de location est conclu entre cette offre et le transfert du droit de propriété, et que ce transfert survient après le délai de 365 jours? / 1. Does subsection 12(12) apply where an offer to purchase is accepted less than 365 days after the initial acquisition of the property, a lease agreement is executed between the offer and the transfer of ownership, and the transfer occurs after the 365-day period?
2. La réponse est-elle la même si le bien a été préalablement détenu par une fiducie pendant plus de 365 jours? / Is the answer the same if the property was previously held by a trust for more than 365 days?

Position Adoptée: 1. Question de fait et de droit / 1. Question of fact and law; 2. Oui / Yes.

Raisons: 1. Déterminer la date de disposition d’un bien immobilier comme une résidence ne peut être résolue sans un examen approfondi des faits et particularités de chaque situation, incluant les ententes entre les parties et le droit privé applicable. / 1. Determining the date of disposition of a real estate such as a residence cannot be resolved without a thorough examination of the facts and particularities of each situation, including the agreements between the parties and the applicable private law.
2. Il n'existe pas de règle de continuité. / There is no continuity rule.