News of Note
Maurice – Court of Quebec finds that fees paid to firms structuring flow-through share deals for clients constituted “commissions” so that there were no s. 20(1)(bb) deductions
Email this ContentThe taxpayer (“Maurice”), who was an investment advisor at a wealth management division of a brokerage, was charged fees by two specialist firms (Oberon and WCPD) that were equal to a percentage ranging between 8% and 11% of the dollar value of the flow-through shares that Maurice purchased for his clients through these firms for immediate resale or donation. Their services included sourcing the flow-through shares, conducting due diligence on the issuers, structuring the transactions to produce tax benefits for the clients and negotiating terms.
Chalifour JCQ found that such fees constituted “commissions” and, as such, did not qualify for deduction under TA 157(d) (similar to ITA 20(1)(bb)), stating:
An analysis of case law reveals that the term "commission" is generally understood in its ordinary sense, that is, as variable percentage-based remuneration. …
She further found that “planning aimed at maximizing a tax benefit arising from the flow-through share market” did not come within the services described in s. 157(d), and that Maurice had not established what portion of the fees paid by him so qualified.
Neal Armstrong. Summary of Maurice v. Agence du revenu du Québec, 2026 QCCQ 2205 under s. 20(1)(bb).
CRA rules on the creation of an aggregator fund on a rollover basis
CRA ruled on the creation, on a rollover basis, of a master, or “aggregator,” mutual fund trust, so that those unitholders of five existing mutual fund trusts (the “reorganizing funds” - each with somewhat different equity investment objectives) who wished to participate could hold their units in the reorganizing funds “through” such aggregator fund. The purpose was to simplify the administration associated with rebalancing of investments in the reorganizing funds, as this would no longer entail the participating unitholders redeeming units in one reorganizing fund and subscribing for units in another reorganizing fund.
In overview, the reorganization involved using three successive circular s. 107.4 transfers to create a holding fund through which the participating unitholders could hold their interests in the respective reorganizing funds, and then merging the five holding funds into a newly settled aggregator fund on an s. 132.2 rollover basis.
More particularly, the steps involved, first, each of the reorganizing funds transferring, to a corresponding newly formed Holdco fund, an undivided interest in its assets commensurate with the unitholdings in it of the participating unitholders, in exchange for the issuance of units of the Holdco funds to the participating unitholders. Thus, a portion of the assets of each reorganizing fund would be held for the Holdco fund (and, indirectly, for the participating unitholders), and the balance would be held for the non-participating unitholders.
The next two steps involved effectively converting the co-ownership interests of the Holdco funds in the assets of the reorganizing funds into units of the reorganizing funds. First, various Holdco funds transfer their assets to corresponding newly formed trusts (“NewFund Bs”) in consideration for additional units of the NewFund Bs, with the participating unitholders remaining unitholders of the applicable Holdco funds.
Then, all the assets of the NewFund Bs (being undivided interests in the assets of the reorganizing funds), are then transferred back to the applicable reorganizing funds for no consideration, but with the reorganizing funds issuing additional units to the applicable Holdco funds having an equivalent value (and with the NewFund Bs being terminated). Thus, the undivided interests in the assets of the reorganizing funds are joined together again as whole ownership interests.
The Holdco funds then transfer their units of the reorganizing funds to a newly formed aggregator fund under s. 132.2 in consideration for units of the aggregator fund, and then redeemed their units in consideration for the distribution of such aggregator fund units to the Holdco fund unitholders (being the participating unitholders).
Thus, the closing structure is that the participating unitholders now hold units of the reorganizing funds through a single aggregator fund, and the balance of the units in the reorganizing funds are held by the non-participating unitholders.
The ruling letter contained a representation that the NAV of each of the reorganizing funds immediately before the first s. 104.7 transfer will be the same as the NAV of each respective reorganizing fund following the third s. 104.7 transfer (with one exception). Messrs. Fedun, Tobin and Mann suggest that this signifies that the reorganization needed to be implemented while the stock exchanges were closed.
Summary of 2024 Ruling 2023-0962031R3 under s. 107.4(1); h/t Stan Fedun, John J. Tobin and Benjamin Mann, “Canada Revenue Agency rules on novel mutual fund trust reorganization” 30 June 2026 article on Torys website.
Somerset – Tax Court of Canada finds that a pre-1972 corp did not accomplish any substantive CCPC planning by continuing to BVI before a sale (otherwise, DAC would apply)
The taxpayer, which had been a B.C. corporation and a Canadian resident since its incorporation in 1943, sought to cease being a “Canadian corporation” as defined in s. 89(1) and, thus, to cease qualifying as a CCPC at the time of closing the sale of two Vancouver real estate properties. To this end, it continued to the British Virgin Islands (“BVI”) shortly before such closing, so that it treated the taxable capital gain of $16 million realized on such disposition as not being subject to refundable tax under s. 123.3 and as being eligible for the general rate reduction under s. 123.4.
The definition of "Canadian corporation" at any time referred to a corporation resident in Canada that was:
(a) incorporated in Canada, or
(b) resident in Canada throughout the period that began on June 18, 1971, and that end[ed] at that time.
Para. (a) was not satisfied since, by virtue of the continuance, it was deemed by s. 250(5.1)(a) to have been incorporated in BVI. Although it satisfied para. (b) on a literal basis since it had been continuously resident in Canada, MacPhee J adopted the interpretation in inter alia Saipem that para. (b) would apply only to a corporation not incorporated in Canada. However, s. 250(5.1)(a) deemed the taxpayer to have been incorporated in the BVI for most purposes including para. (b), so that at the disposition time it qualified as a Canadian corporation and, thus, as a CCPC.
If the taxpayer nonetheless had succeeded in ceasing to be a CCPC, then applying DAC, this would have resulted in an abuse of ss. 123.3, 123.4, and 250(5.1) for GAAR purposes. In rejecting the taxpayer's argument that there was no abuse because there was a reasonable alternative transaction—namely, that the taxpayer could have been incorporated in BVI and thereby avoided the tax under s. 123.3 -- MacPhee J accepted the Crown's submission that the alternative transaction must be one that is contemporaneous with the transaction actually undertaken.
Furthermore, the alternative transaction also did not satisfy a requirement, under the five-part test in 3295940 Canada Inc., that it produce tax consequences approximately as favourable as the series at issue. In particular, since under this scenario the taxpayer in fact had been incorporated in BVI and was continuously resident in Canada, it would be a “Canadian corporation” under para. (b) of the definition.
Neal Armstrong. Summaries of Somerset Limited v. The King, 2026 TCC 123 under s. 89(1) – Canadian corporation and s. 245(4).
Desjardins Sécurité financière Compagnie d’Assurance Vie – Tax Court of Canada applies the presumption against derogating from Superior Court jurisdiction
The taxpayer, an insurer, was assessed by CRA for Nova Scotia large corporations tax that was imposed pursuant to the Income Tax Act (Nova Scotia) but calculated in accordance with ITA s. 181.3. Smith J. found that the Tax Court lacked the jurisdiction to consider the taxpayer's appeal of this assessment.
The taxpayer had submitted that the statement in s. 75 of the Nova Scotia Act - that various provisions, including the Division J provisions regarding ITA appeals, applied to the large corporations provisions of Part III of the Nova Scotia Act - contrasted with a provision of the Nova Scotia Act stating that s. 169 applied for the purposes of that Act, which indicated a legislative intention that large corporations could appeal Nova Scotia large corporations tax assessments to the Tax Court.
In rejecting this submission, Smith J noted the established “rule that any derogation from the jurisdiction of the provincial superior courts (in favour of the Federal Court or otherwise) requires clear and explicit statutory language” and found that, rather than there being any such derogation, s. 2(10)(j) of the Nova Scotia Act had an “unambiguous” statement that the references in the cross-referenced ITA procedural provisions to the Tax Court of Canada referred to the Supreme Court of Nova Scotia.
Neal Armstrong. Summary of Desjardins Sécurité financière Compagnie d’Assurance Vie v. The King, 2026 CCI 109 under ITA s. 169(1).
We have translated 5 more CRA interpretations
We have translated a further 5 CRA interpretations released in April of 1999. Their descriptors and links appear below.
These are additions to our set of 3,600 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 27 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Income Tax Severed Letters 30 June 2026
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA notes that Canadian partners are relieved from filing T1135s where they hold “their” foreign property through a foreign partnership in which they have a 10% interest
A foreign partnership holding foreign investment property with a cost amount over $100,000 constituted a “specified Canadian entity” because its Canadian-resident partners held partnership interests entitling them to at least 10% of the income (or loss) of the partnership during the period, so that it was required to file T1135 returns.
The Canadian partners were not required to file a T1135 if their only relevant property was their interest in the partnership, given that an interest in a partnership that is a specified Canadian entity is excluded from being “specified foreign property” pursuant to para. (o) of that definition.
Neal Armstrong. Summary of 2 June 2026 STEP Roundtable, Q.15 under s. 233.3(1) – specified Canadian entity – (b).
41 Victoria SENC – Court of Quebec finds that a tenant inducement payment (TIP) tied to an increase in basic rent was currently deductible to the landlord
A Quebec general partnership (“SENC”) with individual partners agreed with a prospective tenant (“Brookfield”) that it would:
- erect a new building on its lands at its own cost;
- construct the tenant improvements needed by Brookfield (amounting to $17 million) at Brookfield’s cost; and
- pay a tenant improvement allowance of $4.6 million to Brookfield upon Brookfield taking possession.
The lease agreement stated that reimbursement by Brookfield of the allowance would be accomplished by being “amortized over the [15-year] Lease Term and added to the Basic Rent, interest-free.”
Davignon JCQ rejected the ARQ's position that the allowance was a loan to Brookfield, indicating that this was inconsistent with the parties’ agreement being one of lease and with the rejection in Shell of an “economic realities” approach, and further stated:
SENC did not intend to grant Brookfield an interest-free loan, but rather to induce it to commit to a long-term lease by offering it an allowance, among other advantages also provided for in the Lease.
In finding that the allowance was currently deductible by SENC, when paid in 2015, he stated:
[T]he Canderel … rule is simple: a taxpayer may deduct a TIP [tenant inducement payment] … in full in the year of payment where the TIP generates both immediate benefits and benefits relating to future income. …
In this case, as in Canderel, the TIP generated at least one immediate benefit to SENC that materialized in the 2015 taxation year, namely the avoidance of the “hole in income” that the company would have continued to sustain had the mortgaged building remained vacant.
Neal Armstrong. Summaries of 41 Victoria SENC v. ARQ, No. 500-80-040518-202, 22 June 2026 (Court of Quebec) under s. 18(1)(a) – capital expenditure v. expense – current expense v. capital acquisition and s. 9 - timing.
IWK Health – Federal Court of Appeal declines to depart from Westcoast’s finding that employers could not claim HST on the reimbursed health care expenses of their employees
Some Nova Scotia hospitals reimbursed (through a health care plan administrator) their employees for the employees’ costs (including HST) of acupuncture, massage therapy, naturopathy, or homeopathy services. The hospitals took the position that they were deemed by s. 175 to have received those care services themselves, and claimed public service body (PSB) rebates accordingly.
The Tax Court had followed the FCA decisions in Westcoast Energy and ExxonMobil in rejecting this position, stating that those services were “of a particularly personal and individual nature” and that she would expect the employees “to access these types of services on their personal time.” Accordingly, these services did not satisfy the s. 175 test of being “for consumption or use … in relation to activities” of the hospitals.
On appeal, the taxpayers were unsuccessful in establishing that those two decisions were manifestly wrong, i.e., they overlooked a relevant statutory provision or a case that ought to have been followed. In particular, although neither case mentioned General Motors, this could be explained by that case being concerned with expenses incurred by the employer, rather than (as in the above two cases) with expenses incurred by the employees and later reimbursed by the employer.
Neal Armstrong. Summary of IWK Health Centre v. Canada, 2026 FCA 113 under ETA s. 175(1).
CRA indicates that a CCUS credit cannot be claimed at the regular rate while a wage shortfall has not yet been corrected, and that such shortfall does not taint future years
Commencing in 2025, Canco started engaging in the construction and installation work for a Canadian carbon capture project that was a qualifying CCUS project. A portion of its installation expenses for 2025 included an amount paid to a contractor who it later learned had three employees who were covered workers but who had not been compensated in accordance with the prevailing wage requirement, i.e., each worked 100 days in 2025 at less than the prevailing wage rate, resulting in a total shortfall for the three workers of $2,600. Canco has not received any cooperation of the contractor in remedying that shortfall.
CRA indicated that if, at the time of making the CCUS tax credit claim for its 2025 taxation year, Canco knew that it had not satisfied the labour requirement, then it should not elect under s. 127.46(2) even though it was seeking to remedy the shortfall – and if it did, it might be subject to the gross negligence penalty under s. 127.46(9). Canco would have until June 30, 2027 to have the shortfall paid and still be able to then claim the CCUS tax credit for that year.
If Canco only discovered that it did not meet the compensation requirement after it had elected and claimed the CCUS tax credit in its 2025 return, then the additional tax under s. 127.46(6) would be computed as $22 per day for the 300 work days involved, for a total of $6,600.
Regarding the reasonable steps referred to in the attestation requirement under s. 127.46(3)(b)(ii), CRA indicated that Canco could, for example, have obtained the appropriate covenants from the contractor, including that the contractor would meet the prevailing wage requirements, permit regular monitoring of compliance with the labour requirements, provide appropriate updates at reasonable project intervals, and provide written compliance declarations.
CRA further indicated that, as Canco would meet the labour requirements for 2026 and 2027, Canco could elect under s. 127.46(2) in making its claims for the CCUS tax credit for its 2026 and 2027 taxation years, notwithstanding a failure for its 2025 taxation year.
Neal Armstrong. Summaries of 28 April 2026 External T.I. 2025-1081341E5 under s. 127.46(3) and s. 127.46(6).