Income Tax Severed Letters - 2026-06-17

Ruling

2025 Ruling 2024-1021391R3 - FX Hedging Transactions

Unedited CRA Tags
Subsection 39(1), paragraph 40(2)(g), subsections 40(3.3), 40(3.4) and section 54; section 9; paragraph 12(1)(z.7) and subsections 18(19)-(23); section 245.

Principal Issues: 1. Whether gains or losses by Parent/XXXXXXXXXX LP on the settlement of the FX Principal Swaps (in respect of the repayment of the principal amount, including amortized principal) will be treated as capital gains and losses under section 39, and to the extent there are losses, such losses would not be denied under subsection 40(2), or subsections 40(3.3) and (3.4); 2. Whether any amounts payable or receivable by Parent or XXXXXXXXXX LP on the settlement of the FX Interest Swaps (in respect of periodic interest payments) would be treated as income, and therefore will be included in or deductible from Parent or XXXXXXXXXX LP’s income under section 9; 3. Whether subsection 18(19) and paragraph 12(1)(z.7) apply to the Proposed Transactions; 4. Whether GAAR applies to the proposed transactions.

Position: 1. Yes. 2. Yes. 3. No. 4. No.

Reasons: 1. The FX Principal Swaps are hedging instruments. The underlying debt is capital in in nature in the debtor's hands. Whether a loss is sustained by the taxpayer because of a disposition of foreign currency taxable in accordance with subsection 39(1) or because of the settlement of a cross-currency swap taxable in accordance with subsection 39(2), neither the superficial loss rules nor the stop-loss rules should apply to deny such a loss. 2. It is CRA’s longstanding position that periodic payments under an interest rate swap, including those related to currency fluctuations in respect of underlying interest payments, are to be treated as income in nature. This position is grounded in logic, symmetry and fairness. 3. See below. 4. See below.

Technical Interpretation - External

13 March 2026 External T.I. 2025-1085011E5 - Prince Edward Island Long-Term Care Subsidy

Unedited CRA Tags
LEGISLATIVE REFERENCE: Act: par. 56(1)(u), par. 110(1)(f), par. 118.2(2)(b), (b.1), (b.2) and (d), sec. 118.3 ; Regulations: subsec. 233(1) and (2), par. 233(2)(a) ; Long-Term Care Subsidization Act Regulations: par. 1(1)(c)

Principal Issues: (1) Whether a rent reduction under the Prince Edward Island Long-Term Care Subsidy Program constitutes a social assistance payment made on the basis of a means, needs or income test pursuant to paragraph 56(1)(u) of the Income Tax Act (Act). (2) If so, whether a T5007 Statement of Benefits (T5007) information return must be prepared.

Position: (1) Likely yes. (2) Question of fact.

Reasons: (1) The rent reduction likely constitutes a social assistance payment made on the basis of a means, needs or income test under paragraph 56(1)(u) of the Act. (2) Pursuant to subsection 233(1) of the Income Tax Regulations (Regulations), a person making a payment under paragraph 56(1)(u) of the Act must generally prepare a T5007 information return. The Regulations provide some exceptions. Whether an exception applies is a question of fact. Among others, paragraph 233(2)(a) of the Regulations provides that the information return is not required if the payment is in respect of medical expenses incurred by or on behalf of the payee.

Conference

5 May 2026 Roundtable, 2026-1089381C6 - 2026 CALU - Q.6 - Exempt Test compliance

Unedited CRA Tags
Subsection 306(1) of the Regulations

Principal Issues: (1) Whether an insurer has to perform exempt testing at each policy anniversary in a scenario where the insurer has provided a contractual guarantee to the policyholder that the policy will qualify as an exempt policy. (2) Whether the answer would be different where the life insurance policy is issued on a non-resident life insured by a Canadian life insurer, or where the life insurance policy is issued to a resident person by a life insurer not carrying on a life insurance business in Canada?

Position: (1) Yes (2) No.

Reasons: Subsection 306(1) of the Regulations requires exempt testing and pre-testing on the policy anniversary date.

5 May 2026 Roundtable, 2026-1089391C6 - 2026 CALU - Q.7 - Charitable gifting on death

Unedited CRA Tags
118.1(4.1), 118.1(5), 118.1(5.1) 118.1(5.2)

Principal Issues: Whether a portion of a death benefit paid to a charity as a result of a direct beneficiary designation under a life insurance policy qualifies as a charitable gift.

Position: See response to the specific situational examples. Provided that all the conditions set out in subsection 118.1(5.2) are met, the payment of the death benefit to the charity will be deemed to be a gift for purposes of section 118.1.

Reasons: Legislation.

5 May 2026 Roundtable, 2026-1089291C6 - 2026 CALU - Q.1 - Audit activities

Principal Issues: Can CRA comment on audit activities involving insurance products.

Position: See response.

5 May 2026 Roundtable, 2026-1089401C6 - 2026 CALU – Q.8 - Tax Treatment of Foreign Insurance Product

Principal Issues: Whether an offshore insurance product is a life insurance policy for Canadian income tax purposes.

Position: Unable to determine

Reasons: Depends on the facts and circumstances of a particular product

5 May 2026 Roundtable, 2026-1089311C6 - 2026 CALU - Q.2 - Beneficiary designations and taxable benefits

Unedited CRA Tags
15(1), 246(1)

Principal Issues: Whether the CRA is prepared to reconsider its views on the application of the taxable benefit provisions in subsections 15(1), 56(2) and 246(1) of the Act with respect to life insurance policies where there is a corporation that is the policyholder and premium payor and the beneficiary is a different taxpayer?

Position: No.

Reasons: The determination of whether a benefit has been conferred is a question of fact.

5 May 2026 Roundtable, 2026-1089321C6 - 2026 CALU – Q.3 – Trusts and Life Insurance

Principal Issues: 1. Whether subsection 105(1) is applicable in a situation where a Trust owns and pays the premiums of a life insurance policy on the life of Mrs. A, and Mr. B, a beneficiary of the trust, is named as the beneficiary of the policy. 2. Would CRA's position be different if Mr. B was the shareholder of a corporation (Opco) and Opco rather than Mr. B was the beneficiary of the Policy under which the Trust was the owner and premium payor?

Position: 1. Our view in respect of the application of subsection 105(1) remains as stated in CRA Document #2008-0301881E5. 2. It could be considered that the Trust confers a benefit on Opco by paying the premiums of the Policy of which Opco is the beneficiary.

Reasons: Previous positions.

5 May 2026 Roundtable, 2026-1089341C6 - 2026 CALU – Q.4 – Subsection 84(2) – Timing of Amalgamation in Post-Mortem Pipeline/Bump Planning

Unedited CRA Tags
84(2); 88(1)(d.1)

Principal Issues: 1. Whether the amalgamation, in and of itself, constitutes a distribution or appropriation of funds or property for purposes of subsection 84(2)?
2. Whether the amalgamation, in and of itself, constitutes a reorganization of the business or businesses carried on by the subsidiary?
3. Whether the timing of the amalgamation, in and of itself, is a factor in determining whether subsection 84(2) is applicable?

Position: See response below

Reasons: Wording of the Act and previous positions.

5 May 2026 Roundtable, 2026-1089351C6 - 2026 CALU - Q.5 - Definition of Capital Dividend Account in Subsection 89(1)

Unedited CRA Tags
148(7), definition of capital dividend account in 89(1)

Principal Issues: Where there are multiple corporate beneficiaries under a life insurance policy and proceeds are paid in consequence of the death of a person insured, is each beneficiary's CDA addition for the receipt of their portion of death benefits reduced by the amounts calculated in subparagraphs (d)(v) and (d)(vi) for the whole policy?

Position: Yes.

Reasons: Each beneficiary of a life insurance policy must apply subparagraphs (d)(v) and (d)(vi) of the definition of capital dividend account in subsection 89(1) independently.