News of Note
Shopify – Federal Court indicates that it would pare back a CRA unnamed-person requirement (if not already invalid for vagueness) because it would require 8 person-years to respond
Email this ContentThe Minister issued a requirement to Shopify pursuant to s. 231.2 for information identifying listed particulars for all Canadian-resident merchant customers of Shopify. The requested particulars were more extensive than in the companion 2025 FC 968 case (re a treaty-based request). The Ministers sought judicial authorization of such requirement pursuant to s. 231.2(3).
Régimbald J found that although the target group would have been “ascertainable” if the requirement had been restricted to Canadian "merchants," it was unclear (due to contradictory CRA wording) whether the requirement also extended to persons, whether individual or business entities, associated with Shopify accounts. This had the effect of "rendering the target group unduly vague and diffuse, and leaving Shopify in a conundrum as to what to provide in response to the [requirement]”.
Although the request for authorization thus failed on s. 231.2(3)(a) grounds, for completeness, Régimbald J. went on to consider (i) s. 231.2(3)(b) (re verifying compliance under the ITA) and (ii) whether it would have been appropriate for him to exercise his residual discretion to restrict or deny the request for authorization.
Regarding (i), the potential inclusion in the requirement of persons associated with Shopify accounts (described above) violated s. 231.2(3)(b) because the Minister's evidence did not identify any intent to verify the compliance of those additional individuals and business entities with any duty or obligation under the ITA.
Regarding (ii), Shopify had brought uncontradicted evidence that complying with the requirement would take eight person-years of work. Accordingly, the proposed requirement was "disproportional," and he indicated that he would have been inclined to authorize a more limited requirement in similar terms to what was proposed in the companion case, i.e., limited to the total sales revenues and a limited list of identifying particulars.
Neal Armstrong. Summary of Canada (National Revenue) v. Shopify Inc., 2025 FC 969 under s. 231.2(3).
Shopify – Federal Court finds that s. 231.2(3)(b) currently did not authorize unnamed person requirements pursuant to treaty information-exchange Articles
Shopify was a Canadian corporation providing a software platform for online e-commerce transactions. After receiving a request from the Australian Tax Office (ATO) for such information pursuant to Article 21 of the Canada-Australia Treaty (the “Convention”) a year previously, the Minister issued a requirement to Shopify pursuant to s. 231.2 of the ITA (and s. 289(3) of the ETA) for information identifying listed particulars for all merchant customers of Shopify who had revenues from sales to customers located in Australia. The Ministers sought judicial authorization of such requests pursuant to the “unnamed persons” provisions of s. 231.2(3) (and s. 289(3) of the ETA).
Régimbald J noted that, although s. 231.2(1) granted the Minister the authority to obtain information or documents regarding named persons for purposes relating to the administration or enforcement of the Act or a “listed international agreement” such as the Convention, in the case of a requirement regarding unnamed persons, s. 231.2(3)(b) instead only referred to the verification of compliance by a person or persons in a group with any obligation under the Act, i.e., there was no mention of any listed international agreement.
This was telling. For instance, it seemed “highly unlikely that Parliament would refer to ‘this Act’ twice within section 231.2 and assign a different meaning to each reference”. Furthermore, a refusal to exchange information on the basis of s. 231.23(b) was consistent with Article 21 of the Convention, which did not impose on the Minister an obligation to carry out measures at variance with Canadian law.
Although it was not necessary for him to do so, Régimbald J went on to consider whether the requirement satisfied the stipulation in s. 231.2(3)(a) that the referenced group be “ascertainable.” In this regard, he stated:
As long as the identities of those within the target group can be readily made exact or determined with sufficient precision by the Court and the third party, the Minister will have met the legislative precondition in paragraph 231.2(3)(a) and identified a sufficiently clear “ascertainable” group. On the evidence adduced, that is the case here.
He further indicated that it would not be appropriate for the Court to exercise its residual discretion in favour of not compelling the disclosure (if disclosure had not already been precluded on the s. 231.2(3)(b) grounds). It did not matter that Shopify Ireland and Shopify Singapore might be in possession and control of some of the requested information, as such information could be accessed in Canada by Shopify itself. Furthermore, if Shopify could not provide a response within the 45 days stipulated in the requirement, the Court retained jurisdiction to extend the time to respond on motion from Shopify.
Thus, the requirement would have been authorized if the amendment to add “listed international agreements” to s. 231.2(3)(b) had been already implemented.
Neal Armstrong. Summary of Canada (National Revenue) v. Shopify Inc., 2025 FC 968 under s. 231.2(3).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in July of 2000. Their descriptors and links appear below.
These are additions to our set of 3,221 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).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 2000-07-21 | 18 July 2000 External T.I. 2000-0015915 F - PTPE - INTERET PAYE POUR HONORER CAUTION | Income Tax Act - Section 39 - Subsection 39(1) - Paragraph 39(1)(c) - Subparagraph 39(1)(c)(iv) | no BIL on loan from bank to fund guarantee of former SBC’s debt or where subrogated debt of the former SBC arises from voluntary payment of its defaulted debt rather than under guarantee |
| Income Tax Act - Section 40 - Subsection 40(2) - Paragraph 40(2)(g) - Subparagraph 40(2)(g)(ii) | s. 40(2)(g)(ii) applies where loan from bank to fund guarantee of former SBC’s debt or where subrogated debt of the former SBC arises from voluntary payment of its defaulted debt | ||
| 28 June 2000 External T.I. 2000-0020025 F - OSBL - Loi des compagnies, Partie 1A | Income Tax Act - Section 149 - Subsection 149(1) - Paragraph 149(1)(l) | share corporation can potentially qualify as a NPO | |
| 30 June 2000 External T.I. 2000-0026625 F - Exercice financier - 249.1 | Income Tax Act - Section 249.1 - Subsection 249.1(1) - Paragraph 249.1(1)(b) - Subparagraph 249.1(1)(b)(ii) | s. 249.1(1)(b)(ii)(C) does not apply where a member partnership was previously subject to s. 249.1(1)(b)(ii) but was not so subject when it became a member of this partnership | |
| 29 June 2000 External T.I. 2000-0026635 F - APPLICATION 40(3.12) SUITE A 98(6) | Income Tax Act - Section 40 - Subsection 40(3.12) | s. 98(6) permitted accessing of s. 40(3.12) after conversion of LP to general partnership | |
| Income Tax Act - Section 98 - Subsection 98(6) | s. 98(6) applied on conversion of limited partnership to general partnership | ||
| 28 June 2000 External T.I. 2000-0028665 F - QUOTAS DÉTENUS DEPUIS MOINS DE DEUX ANS | Income Tax Act - Section 85 - Subsection 85(1) | taxpayer can order properties (e.g., milk quotas) disposed of on s. 85(1) partial rollover transaction so that the only capital gain is realized on CGD-eligible property | |
| 2000-07-07 | 7 July 2000 External T.I. 2000-0015455 F - Allocation de retraite | Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance | the principal shareholder continues as an officer, he is not considered to have retired, even if the corporation's business has been sold |
CRA finds that a financial institution’s investment in a non-resident partnership generally does not give rise to zero-rated supplies after the initial investment
A Canadian financial institution made a capital contribution to a “Non-Resident Partnership”) between a general partner and a limited partner, with a resulting credit to its capital account. Could it claim ITCs for its related inputs on the basis that its investment was a zero-rated financial service under ETA s. VI-IX-1?
CRA noted that applying the two-step approach in Folio S4-F16-C1, the Non-Resident Partnership might not be a partnership for Canadian tax purposes, given that the general partner did not have an interest in the “partnership,” and the limited partners and general partner had no obligation for its liabilities. If not a partnership, the consideration received for the investment (the “partnership” interest) might not be a financial instrument, in which case, that investment would be excluded from being the supply of a “financial service” by virtue of the exclusion in para. (n) of the definition thereof. [This possibility seems unlikely. If not a partnership, the consideration received presumably would qualify as a share.]
CRA indicated that the acquisition of the initial investment likely was a zero-rated supply, namely, a payment of money in consideration for the partnership interest, so that the related inputs could potentially qualify for input tax credits (ITCs).
Regarding the subsequent holding of the partnership interest, they would not represent the making of a supply. Furthermore, even if the receipt of monthly partnership distributions constituted the making of a supply (in which case, it would be an exempt supply under para. (f) of the financial services definition), it would not constitute the making of a supply for consideration (i.e., the financial institution would not receive consideration in return for receiving such distributions) so that no related ITC claims could be made. [CRA apparently did not regard the monthly distributions as deferred zero-rated consideration for the investment, even though the entitlement thereto was part of the bundle of rights (the partnership interest) received in consideration for the investment.]
Finally, the making of an additional capital contribution by all partners would not be a taxable supply made for consideration, as no consideration (i.e., partnership interest, further right or enhancement) would be received in return for doing so – so that, again, this could not generate ITCs. [This seems questionable. A partner has a deferred undivided interest in the partnership property and a capital contribution credited to its capital account would increase the quantum of that entitlement.]
Neal Armstrong. Summaries of 30 May 2024 GST/HST Interpretation 246958 under ETA s. VI-IX-1, s. 141.02(1) - non-attributable input, s. 123(1) – financial service - (n), and (f).
Susquehanna International - Irish Court of Appeal finds that a US LLC was not a resident of the US for purposes of the US-Ireland treaty
The taxpayers were Irish resident companies whose ultimate parent was a single member LLC (“SIH LLC”), which was fiscally transparent for U.S. tax purposes. SIH LLC was, in turn, owned by a Delaware LLP, the members of which were six Delaware S corporations, each of which was owned by a U.S. resident businessman. Those individuals included the income of the LLC in their income for U.S. tax purposes.
Whether the Irish companies were entitled to group relief (i.e., consolidation of losses) by virtue of a non-discrimination article in the Ireland-U.S. Treaty (the “DTA”) turned on whether SIH LLC was a "resident" of the U.S. Article 4 of the DTA defined "resident of a Contracting State" to mean "any person who under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management, place of incorporation or any other criterion of a similar nature."
Allen JA stated that, as “the purpose of the treaty is to avoid double taxation … it stands to reason that it should only apply to persons who otherwise would be exposed to a liability to pay tax. SIH LLC had no such exposure.”
He further suggested that TD Securities (which found a US LLC to be a resident of the U.S. for purposes of the Canada-U.S. Treaty) appeared to be incorrectly decided, stating:
As to Boyle J.'s conclusion that TD LLC must be considered to be liable to tax by virtue of all of its income being fully and comprehensively taxed under the U.S. Code, albeit at the member level, I agree with the judge that this conflated the taxation of the LLC with the taxation of the income and ignored the legal separation between the entity and the members. The DTA applies to persons who are liable to tax, not to income that is liable to be taxed.
The taxpayers’ appeal was dismissed.
Neal Armstrong. Summary of Revenue Commissioners v Susquehanna International Group Ltd & ors [2025] IECA 123 under Treaties – Income Tax Conventions – Art. 4.
Ehresman – Tax Court of Canada finds that cash reserves were not active business assets because they were excessive in relation to reasonably-determined risks
Whether the sale by a couple of their shares of a private corporation (CCM) with producing Canadian oil wells and a Canadian financial services business constituted a sale of qualified small business corporation shares (QSBCS) turned on whether their CCM shares satisfied the test in the QSBCS definition of more than 50% of the fair market value (FMV), over the 24 months preceding the disposition, of their shares being attributable to assets used principally in CCM’s active business. Given that CCM had substantial cash holdings, this issue turned on whether at least $710,000 of this cash was so used in the business on the basis of being required by the oil and gas business as a reserve against prospective future well decommissioning costs.
Esri J rejected this proposition on the basis that the evidence indicated that the prospect of decommissioning costs being at this high a level was something quite remote and stated:
[I]t is a foregone conclusion that sooner or later decommissioning costs will become due, but that is not enough. The case law requires a rational connection between the reasonably determined risk and the amount of the reserves. It does not permit an appellant to set aside virtually unlimited amounts of property on the theory that there is a small and remote risk of an unlimited liability at an unspecified future date.
Neal Armstrong. Summary of Ehresman v. The King, 2025 TCC 78 under s. 110.6(1) – QSBCS.
CRA rules on qualification of building an access road as CEE
In order to facilitate access of exploration drilling equipment to a deposit, the taxpayer (a principal business corporation) will be constructing a one-way gravel road to the site. There is not currently a plan to maintain the road past the current exploration phase.
CRA ruled regarding the expenditures on this road qualifying under para. (f) of Canadian exploration expense.
Neal Armstrong. Summary of 2024 Ruling 2024-1017941R3 under s. 66.1(6) – CEE – (f).
Jewish National Fund - Federal Court of Appeal finds that the Federal Court lacked jurisdiction to review a decision of the Minister to publish notice of revocation of charitable registration
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).
Income Tax Severed Letters 4 June 2025
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA confirms that the mark-up in the charges for geophysical services by a connected corporation to an exploration company over its incurred costs would be excluded from CEE
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).