News of Note
BC Hydro – Tax Court of Canada finds that ETA s. 182 did not apply to a payment made in consideration for modifying an agreement to optionally extend its term
Email this ContentBC Hydro, which had entered into an electricity purchase agreement (EPA) with an independent power producer for the supply of electricity at a particular project in BC, agreed with that supplier that the EPA would be amended to provide, inter alia, that in consideration for the payment by BC Hydro of the sum of $8.5 million by the date 30 days after the project became operational, BC Hydro would have the option to extend the term of the EPA by a further 16 years.
BC Hydro submitted that s. 182 applied to the $8.5 million sum as being an amount paid by it as a consequence of the modification of the EPA. In rejecting this submission, Bocock J found that the payment was consideration for the optional term extension and therefore was consideration for a "taxable supply per se." Since the payment was made for such taxable supply, it was not made as a consequence of any modification of the electricity supply agreement (the EPA) as required by s. 182.
Neal Armstrong. Summary of British Columbia Hydro and Power Authority v. The King, 2025 TCC 61 under ETA s. 182(1) and General Concepts – Evidence.
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in September and August of 2000. Their descriptors and links appear below.
These are additions to our set of 3,188 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 24 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Delta 9 Cannabis – Alberta Court of King’s Bench determines that a reverse vesting order should not permit the target corporation to transfer out future s. 80 income tax liabilities
A cannabis producer (“Bio-Tech”) had entered CCAA proceedings. A requested reverse vesting order (RVO) contemplated that an arm’s length purchaser would acquire all the Bio-Tech shares and that a residual company (“ResidualCo”) would have transferred to it excluded assets and liabilities. The excluded liabilities included taxes owing or accrued due by Bio-Tech for the period prior to the CCAA filing date. However, the draft RVO also provided that such excluded taxes would include any taxes related to debt forgiveness arising from or in connection with the consummation of the transaction.
CRA argued successfully that s. 80(13) would operate to include forgiven debt amounts in the income of Bio-Tech on the future date when the transfer to ResidualCo occurred and the Court could not approve a provision in a transaction contract that required the Minister not to apply the ITA regarding the application of s. 80(13) to Bio-Tech. Marion J. ordered that the wording of the RVO was to be amended to include language that made it clear that it did not apply to any future inclusion of income to Bio-Tech pursuant to s. 80.
This conclusion is likely to limit the practical viability of an RVO where the application of the debt-forgiveness rules has a material impact on the subject corporation.
Neal Armstrong. Summary of Delta 9 Cannabis Inc (Re), 2025 ABKB 52 under s. 80(13) and summary of Chris Lang, “Debt Restructuring Using a Reverse Vesting Order: Tax Issues,” Canadian Tax Focus, Vol.15, No. 2, May 2025, p. 2 under s. 80(13).
A taxpayer may wish to re-object if its initial objection results in a varied reassessment
Where CRA responds to an objection by reassessing to vary the previous reassessment (thereby nullifying it), the taxpayer, rather than appealing the varied reassessment to the Tax Court under s. 165(7), can choose to re-object (unless it is a nil reassessment.) Where there is a re-objection, the CRA policy (per 3.3.2.8 of the Audit Manual) is to assign the file to the same appeals officer.
Taxpayers (including large corporations by virtue of s. 165(1.1)) have the right to address new issues raised in the varied reassessment.
Neal Armstrong. Summary of Robert Celac, “Re-Objecting After a Varied Reassessment,” Canadian Tax Focus, Vol.15, No. 2, May 2025, p. 3 under s. 165(7).
CRA rules on a double post-mortem pipeline
Two spouses (the parents) owning a portion of the shares of a family company (Opco) earning interest and dividends from a portfolio of loans and private company shares, died in relatively quick succession. Accordingly, a double pipeline transaction was proposed under which each estate transferred its shares to a Newco in consideration for mostly a note in one case and mostly high-PUC preferred shares in the second.
Following the amalgamation of Opco and the two Newcos a year later, the note and these high-PUC preferred shares would be repaid or redeemed at a rate per quarter not exceeding 25% of their initial principal or redemption amount. In addition, on the amalgamation, it appeared to be contemplated that discretionary non-voting shares would be issued by Amalco and that the PUC of these shares would also be distributed in cash at a rate per quarter, following the amalgamation, not exceeding 25% of their initial PUC.
Neal Armstrong. Summary of 2024 Ruling 2023-0998721R3 under s. 84(2).
Methanex – Privy Council confirms that a Barbados IBC was a resident of Barbados for general treaty purposes
Methanex Trinidad paid U.S.$85.4 million in dividends to its Barbados parent (Methanex Barbados), which promptly paid dividends to its Cayman parent which, in turn, promptly paid dividends to the ultimate Canadian parent (Methanex Canada).
After rejecting the submission of the Board of Inland Revenue (the “Board”) that the avoidance of Trinidad withholding tax on the dividend from Methanex Trinidad to Methanex Barbados, which benefited from the treaty between the two countries, resulted in an “artificial or fictitious” reduction in Trinidad (withholding) tax pursuant to s. 67(1) of the Income Tax Act (Trinidad), Lord Richards then turned to treaty-interpretation issues.
After reviewing Crown Forest, he found that Methanex Barbados was a resident of Barbados for purposes of the treaty, stating that in this regard, although Methanex Barbados had been incorporated under the International Business Companies Act (Barbados), so that it was subject to a very low rate of tax on its income, it nonetheless was subject to tax in Barbados on its worldwide income.
Regarding the Board's submission that the dividends should not be regarded as having been paid to a resident of Barbados for treaty purposes, Lord Richards distinguished Aiken Industries on the basis that there, the taxpayer was contractually obliged to pay interest payments it received to its creditor without any profit on the transaction, whereas here, "not only did Methanex Barbados make a profit as a result of the payment of the Dividends to it, but the profit thereby accruing to it was essential to the legality of the dividends which it then paid to Methanex Cayman."
Neal Armstrong. Summary of Methanex Trinidad (Titan) Unlimited v The Board of Inland Revenue (Trinidad and Tobago) [2025] UKPC 20 under Treaties – Income Tax Conventions – Art. 10.
Income Tax Severed Letters 30 April 2025
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Northbridge – Federal Court of Appeal indicates that it is appropriate to determine ITCs on the basis of global evidence rather than on a supply-by-supply basis
Northbridge issued around 5,000 insurance policies each year to trucking companies operating in Canada and the US. It claimed ITCs for 1/3 of the GST/HST paid by it on its general head office and overhead costs on the basis that a portion of its insurance supplies were zero-rated under s. VI-IX-2. However, the Tax Court had completely denied its ITC claims on the basis that Northbridge had not determined the extent to which each of its policies was zero-rated, and instead only had “global evidence.”
In rejecting this approach, Webb JA stated:
[T]he general head office and overhead costs are incurred as part of the overall business being carried on by Northbridge. Any property or service acquired as part of the general head office and overhead costs is not acquired solely to be consumed in relation to a particular insurance policy, but rather such property or service is acquired to be consumed or used in relation to all insurance policies issued by Northbridge.
He referred the matter back to the Tax Court to determine the amount of ITCs to which Northbridge was entitled for such GST/HST costs in accordance with s. 141.02.
Neal Armstrong. Summaries of Northbridge Commercial Insurance Corporation v. Canada, 2025 FCA 83 under ETA s. 169(1) and s. 141.02(1) – direct input.
Gross – Quebec Court of Appeal finds that a corporation’s controlling shareholder provided services, to fulfil its contractual obligations, qua employee, not independent contractor
A CPA (Mr. Gross) was the sole shareholder of two corporations (635 and 307), each of which was a partner in a Richter professional partnership or a Richter management services partnership. A partnership contract required all the direct or indirect individual partners to devote their services exclusively to Richter affairs.
Mr. Gross also was the controlling shareholder of a corporation (9149), which agreed with 635 and 307 to provide the full-time services of Mr. Gross in fulfilment of their obligations as partners to provide his services. Mr. Gross, who did not have a written agreement with 9149 for the provision of his services, was treated by the ARQ as providing those services qua employee of 9149 rather than independent contractor, so that the ARQ assessed regarding failure to make source deductions and to deny expenses deducted from his income.
Lavallée JCA confirmed that 9149 should be regarded as having superintendence and control over Mr. Gross for purposes of viewing him as a 9149 employee (notwithstanding his de jure control of 9149) given inter alia that the combined effect of the two agreements was to bind him to provide his full-time services to a single group user.
This case may implicitly contradict the narrow CRA view (see, most recently, Folios S3-F1-C1 and S3-F1-C2) as to when individual shareholders are performing a role of employee.
Neal Armstrong. Summary of Gross v. Agence du revenu du Québec, 2025 QCCA 492 under s. 5(1).
CRA confirms that, excepting SLFIs and charities, all GST/HST registrants must file electronically
CRA confirmed that, with the exception of charities and selected listed financial institutions, all GST/HST registrants must file their returns electronically, even if they have received a paper filing package. Continuing to file paper returns will generate penalties.
A 4-digit access code that is required to file returns using GST/HST NETFILE, GST/HST TELEFILE, and GST/HST Internet File Transfer will be found by registrants in their filing package.
Neal Armstrong. Summary of Excise and GST/HST News – No. 119, April 2025, under "Mandatory electronic filing" under ETA s. 238(1).