News of Note
Symco 2015 – Court of Quebec doubts that a restaurant renovation business was a similar business to a business of manufacturing decorative stone cladding
Email this ContentThe taxpayer, which had been engaged in a business of manufacturing decorative stonework claddings, sold essentially all its assets in December 2012 pursuant to a bankruptcy proposal that had been accepted by its creditors, and terminated all its non-shareholder employees. After an acquisition of its control (AoC) in March 2014, it commenced to carry on (from around June 2015) a business of carrying out restaurant renovations, which became profitable. Between the asset sale and the AoC, its activities had been minimal, e.g., two business trips to Haiti, along with a professed desire of one of its shareholders to resume the business. Before confirming ARQ assessments that denied its use of pre-AOC non-capital losses under the Quebec equivalent of s. 111(5)(a)), Boutin JCQ stated:
The economic activity which gave rise to such losses was not the same as the economic activity of [the post-AoC company]. In the opinion of the Court, this is, keeping in mind the words "substantially all” and “similar”, used by the Legislature in [the equivalent of s. 111(5)(a)(ii)(B)], in itself a significant obstacle for the plaintiff. …
[Furthermore] there was a long period of inactivity, the evidence clearly illustrating that the [pre-AoC] company was at a standstill for quite some time.
Neal Armstrong. Summary of Symco 2015 Inc. v. Agence du revenu du Québec, 2024 QCCQ 8022 under s. 111(5)(a)(ii)(B).
Shull – Federal Court finds a breach of procedural fairness by the Tax Court did not require it to allow the taxpayer’s appeal
The taxpayer, who had limited ability to represent himself due to cognitive impairment, was using an agent in his Tax Court hearing until the agent (who had been identified in other proceedings as a vexatious litigant) resigned due to the expressed concerns of the Tax Court regarding such representation. The taxpayer then requested an adjournment to seek advice as to whether he should be represented by counsel, which the Tax Court refused, without giving reasons. The taxpayer was given the choice of discontinuing his appeal - or proceeding with his appeal on his own, which he did.
Monaghan JA found that “the Tax Court breached Mr. Shull’s procedural fairness rights by refusing the adjournment” – but in nonetheless dismissing the taxpayer’s appeal applied the principle (in light of the weakness of the taxpayer’s case) that “where the result is inevitable, a court may exercise its discretion to not grant a remedy for the breach” of procedural fairness.
Neal Armstrong. Summary of Shull v. Canada, 2025 FCA 25 under s. 180(3).
CRA releases the 3 December 2024 CTF Roundtable
CRA has released under the severed letter program the final version of all the questions and answers at the 3 December 2024 CTF Roundtable. For your convenience, the table below sets out the descriptors and links to the summaries, and questions and answers, which we prepared in December.
Income Tax Severed Letters 29 January 2025
This morning's release of 17 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA comments on the timing of disposition on the insolvency of a bitcoin platform operator
CRA applied routine tax concepts to interesting facts.
Following the 2014 insolvency of a Japanese bitcoin platform operator (“Mt. Gox”), which had permanently lost 650,000 bitcoin, the Tokyo court (in 2021) approved a “Rehabilitation Plan” which in general terms gave the former platform users a choice between receiving, on or before October 2025, an “Early Lump-Sum Repayment” (so as to receive payments in cash and Bitcoin Cash totaling approximately 21% of their approved claims) or a “Final Repayment” (entitling them to payments based on the value of the remaining assets of the estate at an undetermined date in the future). The taxpayer elected to receive the Early Lump-Sum Repayment.
CRA found that former users of the Mt. Gox platform did not hold proprietary rights over the bitcoin held through the platform, including those that Mt. Gox had lost, and instead owned contractual claims against Mt. Gox, so that there was no disposition by them when the underlying bitcoin was lost. A disposition of the taxpayer’s claim would instead be considered to have occurred in the year of receipt of the Early Lump-Sum Repayment. Amounts received from the estate in the form of crypto-assets (i.e., the Bitcoin Cash) would be considered to have been “received” by the taxpayer as creditor when the Bitcoin Cash was credited to the taxpayer’s account with a cryptocurrency exchange.
Neal Armstrong Summary of 30 October 2024 Internal T.I. 2023-0996541I7 under s. 248(1) – disposition – (a) and s. 54 – proceeds of disposition.
CRA rules on the application of the half-year rule exception on s. 98(5) wind-ups
2022-0941241R3 concerned the successive wind-ups of two “subsidiary” general partnerships as a result of the parent winding-up under s. 88(1) the two corporate subsidiaries, each of which had been a partner with the parent.
Now, CRA provided a supplementary ruling that, provided that (the 364-day rule in) Reg. 1100(2.2)(f) was satisfied (or as per Reg. 1100(2.2)(g), the Reg. 1100(2.2) exception applied to the transferor partnership), the half-year rule in Reg. 1100(2) did not apply by virtue of Reg. 1100(2.2) to the depreciable property acquired by the parent on the two partnership wind-ups.
Apparently, the point is that the transfer of depreciable property of each subsidiary partnership to the remaining partner (the parent) by operation of law entailed the acquisition of property by the parent from a person with whom the parent was not dealing at arm’s length “at the time the property was acquired,” i.e., the parent is considered, as required by Reg. 1100(2.2)(e), to not be dealing at arm’s length with a person (the partnership, being a person for income-computation purposes) that, as a substantive matter, disappears at the moment in question. (The underlying ruling stated, for instance, that: “For greater certainty, there will not be any time interval between the time of the cessation of Partnership D’s existence and the time that all property of Partnership D is distributed to ParentCo.”)
Neal Armstrong. Summary of 2024 Ruling 2024-1008661R3 under Reg. 1100(2.2)(e).
Madison Pacific – Federal Court of Appeal finds that Deans Knight applied to a corporate restart plan
Madison Pacific spun out its existing mining assets so that it was a shell with only tax losses, and then the B.C. real estate companies of two individuals transferred various real estate assets, including jointly owned properties, to Madison Pacific and received shares that resulted in them having a combined total of 46.56% of the votes and 92.82% of the equity.
Woods JA found no reversible error in the application by the Tax Court of Deans Knight to deny the carryforward of capital losses by Madison Pacific to the taxation years at issue.
However, the Tax Court had erred in determining that the series only included the transactions comprising the above corporate transformation. Under s. 248(10), the losses were part of the series since their claiming was contemplated in the corporate transformation (and, in fact, had been found to be its sole purpose). Thus, the Tax Court had not erred in finding that there was an avoidance transaction since the series of transactions included the loss utilization.
Summaries of Madison Pacific Properties Inc. v. Canada, 2025 FCA 20 under s. 245(4) and s. 248(10).
We have translated 7 more CRA interpretations
We have translated a CRA interpretation released last week and a further 6 CRA interpretations released in February of 2001. Their descriptors and links appear below.
These are additions to our set of 3,090 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 23 ¾ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Excise and Specialty Tax severed letters July, August and October 2024
Enns – Federal Court of Appeal finds that a widow was not a spouse of her deceased husband
After the death of her husband, the taxpayer received the proceeds of his RRSP as the designated beneficiary thereof, and transferred those proceeds to her locked-in retirement account. Before allowing her appeal, from an assessment under s. 160(1)(a), on the basis that she was not his “spouse” on her receipt of the RRSP assets, Webb JA indicated:
- “Since the ordinary meaning of ‘spouse’ is a person who is married to another individual and since marriage ends on death, this would lead to the conclusion that when a marriage ends as a result of the death of one of the individuals, the survivor ceases to be the ‘spouse’ of the deceased.”
- When it added “common-law partner” to the Act in 2000, Parliament also changed all of the references to “spouse” to “spouse or common-law partner” so that it “is self-evident that Parliament intended the Act to apply equally to couples, whether they were married or in a common-law partnership”.
- It therefore was relevant that the opening part of the definition of “common-law partner” contemplates two individuals who are cohabiting in a conjugal relationship, and that “[t]wo individuals would not be cohabiting in a conjugal relationship following the death of one of them”.
- Although the “common-law partner” definition generally deemed those who have been cohabiting to thereafter be common-law partners, and a literal application of this provision would deem them to continue as such even after one had died, this “could not have been the intended result”.
Neal Armstrong. Summary of Enns v. Canada, 2025 FCA 14 under s. 160(1)(a).