News of Note
Peloton – Tax Court of Canada finds that ITCs could be claimed in holding a “free” cycling race that generated sponsorship revenues
Email this ContentPeloton was a non-profit association that staged the Tour of Alberta Road Race every year. It was denied ITCs for inputs acquired to stage the race itself on the grounds that the race was produced to fulfill its overall amateur cycling goals rather than as a contractual obligation to sponsors and that, to the extent that the race was a supply, it was made to the public spectators for no consideration.
In finding that Peloton was entitled to the denied ITCs, Sorensen J stated that:
As a matter of practical and commercial reality, the Race and the Sponsorship Contracts were interdependent: the sponsors’ branding, promotional, and participation rights were inextricably linked to staging the Race. The Race formed part of the taxable supplies made to sponsors and for consideration… .
In this regard, he indicated inter alia that:
- “it is self-evident that a transactional tax should be assessed in reference to the commercial relationships created, rather than through reference to the organization’s overarching purpose”; and
- Peloton “could not meet its contractual obligations without the race” whose spectators represented “brand-building promotional opportunities” so that “the sponsorship contracts and the race formed a commercial arrangement that could not be disaggregated for GST purposes”.
Neal Armstrong. Summary of Alberta Peloton Association v. The King, 2026 TCC 32 under ETA s. 141.01(2).
CRA publishes a substantially revised Circular on third-party penalties
CRA has published a revised version of its Circular on the third-party penalties imposed under s. 163.2, which represents a substantial rewriting of the previous version.
Points made include:
- Indicating the basic distinction between the penalty imposed under s. 163.2(2) and that under s. 163.2(4):
The planner penalty is directed primarily at any person who generally prepares, participates in preparing, selling, or promoting, either directly or in-directly, a planning activity or valuation activity.
…. The preparer penalty is generally directed at any person providing tax-related services to a taxpayer.
- Providing examples of misrepresentations in tax planning arrangements, including “a lawyer giving a favourable legal opinion about an abusive tax scheme knowing that it contains false statements” and “an accountant creating offshore structures to obtain a tax benefit relying on false statements”.
- However, stating that “CRA does not require more of reputable practitioners than compliance with the professional standards of their governing bodies.”
- Stating factors that may be relevant to determining whether penalties will be assessed:
- whether the position taken is obviously wrong, unreasonable, and/or contrary to well-established case law
- the person’s experience with the relevant subject matter and knowledge of the other person’s specific circumstances, or lack thereof
- the extent of knowing or deliberate participation in false statements
- the degree to which the culpable conduct represents the most aggressive and blatantly abusive behaviour
- the extent to which there is a pattern of repeated abuse
- the significance of the tax benefit
- Indicating that if “a practitioner discovers that another person made a false statement for tax purposes, the CRA expects practitioners to take the necessary steps to rectify the situation.”
- However, when the Circular then provides the example of a practitioner who discovers that the previous accountant of a new client had made a false statement by not reporting income of the client from the underground economy, CRA indicates that the practitioner should advise the client to make a voluntary disclosure (and, of course, that the practitioner not make the same omission in fresh returns) but does not suggest any further action including where a voluntary disclosure is declined.
Neal Armstrong. Summaries under IC 01-1R2 Third-Party Penalties 17 February 2026 under s. 163.2(1) – culpable conduct, excluded activity, subordinate, s. 163.2(2), s. 163.2(4), s. 163.2(5), s. 163.2(8), and s. 163.2(12).
CRA publishes the December 2025 CTF Roundtable
The Rulings Directorate has published the official version of the December 2, 2025 CTF Roundtable. For your convenience, the table below links to the 14 questions and our summaries of them (which we published in December, with the exception of Q.12, which was first provided this week).
Ngoy – Quebec Court of Appeal allows a tax appeal on the basis of inadequate reasons
The taxpayers' appeal was allowed, and the matter was referred back to the Court of Quebec for a fresh adjudication, given that, in the appealed decision, the judge had not addressed the issue before her in her reasons for judgment (namely, whether the ARQ was justified in using the indirect cash flow method to arrive at its assessments of the taxpayer) otherwise than to quote the ARQ pleadings at length.
Neal Armstrong. Summary of Ngoy v. Agence du revenu du Québec, 2026 QCCA 193 under Federal Courts Act, s. 27(1.3).
CRA confirms that an excepted trust listed in s. 150(1.2) is not subject to Sched. 15 reporting even if it is not an express trust
CRA confirmed that the exceptions to the required Sched. 15 reporting in proposed Reg. 204.2(1), provided for in proposed ss. 150(1.2)(a) to (r), are not restricted to trusts described in the preamble to s. 150(1.2), i.e., (outside Quebec) express trusts – so that such exceptions to the Sched 15 filing requirement apply to any trust which has a filing obligation pursuant to s. 150(1)(c) regardless of whether or not it is resident in Canada and an express trust.
The point of statutory interpretation is that where one provision (Reg. 204.2(1)) assimilates by reference parts of another provision (the listing of excepted trusts in ss. 150(1.2)(a) to (r)) which can be read on a standalone basis, it is not impliedly assimilating the balance of that other provision (e.g., the express trust limitation in the s. 150(1.2) preamble).
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable Q.12, 2025-1080801C6 under Reg. 204.2(1).
Income Tax Severed Letters 25 February 2026
This morning's release of 14 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that interest capitalized to building inventory is not IFE under the EIFEL rules
CRA referred to Oryx, Shofar and Easter Law Trust for the proposition that “the cost of inventory is not considered to be a deductible expense in computing a taxpayer’s income in the year in which the inventory is sold”. On this basis, it concluded that where interest expense was capitalized to the cost of inventory under s. 18(3.1)(b), it would not be included under A(a) of the "interest and financing expenses" (IFE) definition in s. 18.2(1), even though it would effectively be deducted as part of the cost of goods sold on the sale of the inventory.
A(a)(ii) requires that the interest be deductible in the year in which it was incurred. Thus, the same result would be achieved on a plain reading to the extent the interest was capitalized in a year prior to the sale. However, the above CRA approach indicates that the interest also would not be included in IFE even to the extent that it was capitalized in the year of the sale.
Neal Armstrong. Summary of 5 November 2025 External T.I. 2025-1066661E5 under s. 18.2(1) – IFE – A(a).
We have translated 7 more CRA interpretations
We have translated a CRA interpretation issued last week and 6 CRA interpretations released in October and September of 1999. Their descriptors and links appear below.
These are additions to our set of 3,491 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 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Suncor Energy – Federal Court of Appeal finds that, to effect the s. 13(31) continuity rule, the transferee of depreciable property is deemed to have taxation years before its formation
In approximate terms, s. 13(27)(b) deems the available-for-use rules to be satisfied once two actual taxation year ends have passed following the acquisition of the depreciable property. In this regard, s. 13(31)(a) deems a property acquired in a non-arm's length transfer to have been acquired when it was acquired by the transferor.
The Crown effectively asserted that the s. 13(31) continuity rule did not work where the transferee had been newly formed, as it did not have any taxation years that could be counted from the time of the original acquisition of the depreciable property by the transferor to the time of formation of the transferee. In rejecting that position, Webb J.A. stated that “[i]t is a necessary implication of the deemed acquisition of property at a particular time [pursuant to s. 13(31)] that such time must occur during a taxation year” and that “[o]therwise, the time period in paragraph 13(27)(b) would never commence” so that “the purpose of subsection 13(31) of the Act [, which] is to provide for continuity of ownership between non-arm’s-length parties when applying the rule in paragraph 13(27)(b)” would not be met.
Support for this proposition included that the s. 13(31) rule, by virtue of s. 13(31)(b), extended to depreciable properties transferred on a butterfly, for which the transferee corporations are typically Newcos - which contradicted the Crown's view that Newcos could not benefit under the s.13(27)(b) rule by reference to the time of the depreciable property’s acquisition by the non-arm's length transferor.
Neal Armstrong. Summaries of Suncor Energy Inc. v. Canada, 2026 FCA 33 under s. 13(31) and Statutory Interpretation – Interpretation provisions.
DAC Investment – Federal Court of Appeal finds that it was an abuse of s. 250(5.1) and of ss. 123.3 and 123.4 for a CCPC to continue to BVI before realizing a capital gain
With a view to its imminent disposition of the shares of a subsidiary, the taxpayer continued to the British Virgin Islands. As a result, it ceased to be a Canadian-controlled private corporation (CCPC) and became a private corporation that was not a CCPC, with its central management and control remaining in Ontario.
In reversing the Tax Court, Woods, J.A., confirmed CRA's reassessment made on the basis that the resulting non-application of the imposition of refundable tax under s. 123.3, and of accessing the rate reduction under s. 123.4, on the taxable capital gain on the sale was an abuse of those provisions and of the continuance rule in s. 250(5.1).
In particular, the continuance rule was intended to make “tax provisions fairer for corporations moving into or leaving Canada by way of continuance” (para. 72), whereas, here, the continuance had an “inconsequential” business effect (para. 73) and served mostly to abuse an “anti-deferral” rationale of ss. 123.3 and 123.4, namely, ensuring that “investment income should be taxed the same whether it is received directly or through a private corporation” (para. 46).
Woods J.A. also rejected a submission by the taxpayer that it was reasonable to apply s. 245(2) on the basis that the reassessment period for the taxpayers should be the normal reassessment period for a CCPC, i.e., three years rather than four, so that the reassessment at issue was statute-barred. She indicated that the legislative history of the GAAR rule demonstrated that it had been narrowed to only deny tax benefits that resulted from the avoidance transactions, rather than to produce any other results that might be considered reasonable in the circumstances.
Neal Armstrong. Summary of Canada v. DAC Investment Holdings Inc., 2026 FCA 35 under s. 245(4).