News of Note

The Minister sent a notice of intention to revoke (“NITR”) to the appellant, a registered charity. After the Minister issued a notice of confirmation, the Minister agreed, in correspondence with the appellant, to stay the publication of the NITR until the period for appealing the notice of confirmation had expired.

About a month later, the appellant filed a notice of appeal in the Federal Court of Appeal but did not apply for an order extending the period after which the Minister could publish the NITR. Less than three weeks later, the Minister published the NITR in the Canada Gazette, thereby revoking the appellant's charitable registration. As noted by Monaghan JA, a charity cannot appeal a revocation (as contrasted to the right to appeal an NITR to the Federal Court of Appeal).

The appellant filed an application for judicial review and for injunctive relief in the Federal Court regarding the Minister's decision to publish the NITR, and also filed an application for judicial review of the Minister's decision to publish the NITR in the Federal Court of Appeal.

At issue in this proceeding was whether the Federal Court had been correct in determining that it lacked jurisdiction to review the publication decision. The appellant submitted that, as the ITA appeal provisions only captured the decision to issue or confirm the issuance of the NITR and the decision to publish the NITR (triggering revocation of charitable registration) was a separate decision that the appellant could not appeal, therefore only the Federal Court had jurisdiction (pursuant to s. 18(1) of the Federal Courts Act) to judicially review the publication decision.

In rejecting this submission, Monaghan JA noted that ss. 172(3) and 180(1) provided that a registered charity could appeal the Minister’s decision to issue an NITR, or to confirm it following objection, to the Federal Court of Appeal, and that s. 180(2) provided that the Federal Court had no jurisdiction to entertain “any proceeding in respect of a decision of the Minister” from which any such appeal may be instituted.

She then found that, given the close connection between the NITR and its subsequent publication, an application for judicial review of the Minister’s decision to publish the NITR was a proceeding “in respect of” the Minister’s decision to issue or confirm the NITR. Consequently, she agreed that the Federal Court lacked jurisdiction to review the decision to publish the NITR.

She noted that she was not commenting on the separate application for judicial review by the Federal Court of Appeal of the Minister’s decision to publish.

Neal Armstrong. Summary of Jewish National Fund of Canada Inc. v. Canada (National Revenue), 2025 FCA 110 under s. 180(2).

BCO will be issuing flow-through shares to fund exploration work. A second company (ACO), which is wholly owned by the controlling shareholder of BCO, provides geophysical services to its customers, including BCO.

Would any portion of the payments made by BCO to ACO for ACO's services be considered exploration and development overhead expense (CEDOE) so that such portion would be excluded from Canadian exploration expense (CEE) pursuant to ITA s. 66(12.6)(b) and Reg. 1206(4.2) and, thus, could not be renounced by BCO to its flow-through share investors?

CRA noted that under para. (d) of the CEDOE definition in Reg. 1206(1), amounts paid by BCO to a person with whom it was connected under Reg. 1206(5)(a) (i.e., ACO) for the performance of a service, which otherwise would be CEE, will be CEDOE to the extent that the amount charged exceeds the costs incurred by such connected person in providing the service.

Thus, the amount of CEE that BCO would be entitled to renounce in respect of the amounts paid by it to ACO for ACO's services would be limited to the actual cost incurred by ACO in providing such services. Regarding whether certain non-insurable risks and liabilities (e.g., losses if the survey aircraft crashed) could be considered to be “costs incurred” for these purpose, CRA noted that the “Courts have held that a taxpayer will not be considered to have incurred an expense unless and until the taxpayer has an absolute and unconditional legal obligation to pay an amount” and indicated that It seemed unlikely that such amounts could so qualify.

Neal Armstrong. Summary of 9 August 2023 External T.I. 2023-0979431E5 under Reg. 1206(1) – CEDOE – para. (d).

If a foreign affiliate (FA) carries on a business in a foreign county and pays tax to that country on income which the ITA segregates into income from a business other than an active business and active business income, how will the determination of what portion of the foreign tax paid “may reasonably be regarded as applicable to” foreign accrual property income (FAPI) of FA in accordance with the foreign accrual tax (FAT) definition be made?

CRA indicated that it would consider it reasonable to compute FAT by multiplying the total amount of foreign tax paid to the foreign jurisdiction by the foreign affiliate for its taxation year by a fraction:

• the numerator of which is the net income of the foreign affiliate for the taxation year computed under the foreign tax laws from the activities that generate FAPI for Canadian income tax purposes (the “FAPI business”); and
• the denominator of which is the total net income of the foreign affiliate computed under the foreign tax law.

Thus, for the purposes of computing the numerator it is necessary to first identify the activities that would form part of FAPI business, and then the gross income under the foreign tax rules from that FAPI business is to be computed, with that amount then being reduced by the total amount of deductions that are allowed under the foreign tax law and claimed by the foreign affiliate in the taxation year that may reasonably be regarded as directly applicable only to the FAPI business; this amount should also be reduced by the prorated amount of deductions (again allowed under the foreign tax law and claimed by the foreign affiliate) that would not reasonably be regarded as applicable to either the FAPI business or any other income-generating activities, such as overhead or head office expenses.

If there were any tax credits that reduced the foreign tax liability of FA, the above formula might have to be modified or a case-by-case approach might be required.

Neal Armstrong. Summary of 28 May 2025 IFA Roundtable, Q.5 under s. 95(1) – FAT.

CRA is drafting a communique that will clarify that s. 231.1 is the primary information power used by CRA officials to request information, documents, access, and reasonable assistance; whereas the s. 231.2 power will be reserved for obtaining records of financial institutions, information on behalf of treaty partners, and information about unnamed persons.

The communique will clarify that CRA officials should explain in general terms, within the information-gathering correspondence or during meetings, the compliance issue and why the documentation and information sought may be relevant in determining the obligations and entitlements of a taxpayer.

The communique will also apply for purposes of the ETA, which has parallel provisions.

Neal Armstrong. Summary of 28 May 2025 IFA Roundtable, Q.4 under s. 231.1(1).