News of Note
CRA confirms that s. 191(4) specified amounts must be crystallized dollars, and that a PAC can increase a redemption amount above the specified amount
Email this ContentCRA indicated that the objective of s. 191(4) would be defeated if the issuer could specify the amount by way of a formula or simply indicate that the specified amount equalled the fair market value of the consideration for the share – and adjusting the specified amount under a price adjustment clause (PAC) was equally problematic.
CRA maintained its position that, in order for its value to have been specified, the specified amount must be expressed as an actual dollar amount and not as a formula, and it must not be subject to change pursuant to a PAC or otherwise.
Where a PAC operated to increase the share redemption amount so as to equal or exceed the specified amount, this would not result in the deemed dividend being disqualified as an excluded dividend – although by virtue of s. 191(5), the excess of the dividend over the specified amount would not qualify as an excluded dividend. However, where the PAC instead reduced the redemption amount to less than the specified amount, the entire amount of the deemed dividend would be disqualified from being an excluded dividend.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.9 under s. 191(4).
CRA finds that the majority-interest beneficiary of a discretionary trust was not affiliated with a subsidiary of the trust
To focus on the most informative scenario, an individual (“A”), who was a majority-interest beneficiary of a discretionary trust, thus was affiliated with the trust pursuant to s. 252.1(1)(g)(i). The trust held 80% of the common shares of Bco (which had only one class of shares) and A held the other 20%. A was the sole trustee.
Would A and the trust form an affiliated group of persons by which Bco was controlled such that Bco was affiliated with A pursuant to s. 251.1(1)(b)(ii)?
CRA (which indicated that it would restrict its remarks to matters of de jure control) noted that, pursuant to s. 251.1(4)(a), reference to a trust does not include a reference to the trustee. Accordingly, it was the trust alone that had de jure control of Bco, such that the trust and Bco were affiliated. Since Bco was controlled by a single person (the trust), in accordance with the Southside principle (which in this context had not been overridden by a provision like s. 256(1.2)(b)), it could not be said that Bco was controlled by a group of persons consisting of A and the trust.
This would suggest, for instance, that a sale by Bco to A would not be subject to the suspended loss rules.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.8 under s. 251.1(1)(b)(ii).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in December of 1999. Their descriptors and links appear below.
These are additions to our set of 3,393 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).
CRA indicates that losses from the non-Treaty-exempted portion of a Canadian branch business may be carried over to the taxable profits of such portion in other years
Where a US resident carries on, through a permanent establishment (PE) in Canada, a single business that consists of an activity resulting in income that is treaty-exempt, such as the cross-border transport by vehicle that is exempt under Art. VIII(4) of the Canada-US Treaty (the “Exempt Activity”), and an activity resulting in income that is not so exempt, e.g., intra-Canada transport (the “Taxable Activity”), that single business would fall within the Treaty-protected business definition (a business in respect of which “any income” of the taxpayer is exempt by treaty from Part I tax).
In 1999-0008185, CRA concluded that if the Taxable Activity for such a business produced a loss, such loss would not by virtue of ss. 115(1)(c) and 111(9) (prohibiting the deduction of losses from a treaty-protected business) be available to reduce profits from the Taxable Activity in another year.
When asked to comment, CRA indicated that the total business profits attributed to the Canadian PE must reflect what the PE would have been expected to earn if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions, dealing wholly at arm’s length with the US resident. Once such total profits were determined, they were required to be apportioned between the Exempt Activity under Art. VIII(4), and the Taxable Activity in accordance with arm’s length principles (in a consistent manner from year to year) so as to reasonably and accurately reflect the functions and risks associated with those respective activities. Provided that the taxpayer’s resulting allocation of revenue and expenses was appropriate, losses arising from the Taxable Activity could generally be deducted against profits from that same activity in accordance with s. 115(1)(c) and s. 111(9). This would allow the loss from the Taxable Activity to shelter future taxable profits from that same activity. No detailed technical explanation for this departure from 1999-0008185 was given.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.7 under s. 111(9).
CRA confirms that a related Rentalco would generally not be a relevant group entity under s. 84.1(2.31)(c)(iii)
S. 84.1(2.31)(c) (and, somewhat similarly, s. 84.1(2.32)(c)) generally requires that the parent(s) not control, after the disposition to the children’s purchaser corporation, such purchaser corporation, the subject corporation, or any other person or partnership (a “relevant group entity”) that carries on, at the disposition time, an active business that is relevant to the qualification of the shares of the subject corporation as qualified small business corporation shares (QSBCS).
Mr. A and his spouse were the equal shareholders of Opco, with an active business, and Mr. A wholly owned Realco, whose only significant asset was a building that it leased to Opco for use in its operations. 2024-1036641E5 F concluded that, in relation to a sale of the shares of Opco by the two spouses to the Holdco of their adult child, Realco would not be considered a relevant group entity. Would this result change if Opco had a loan receivable from Realco?
Whether Realco was a relevant group entity rested on (i) whether it carried on an active business at the time of disposition and (ii) whether such active business was relevant in determining whether the Opco shares were QSBCS.
Regarding the first test, Realco was carrying on a specified investment business and thus was not carrying on an active business at the time of the disposition. Although s. 129(6)(b) might deem rental income earned by Realco from Opco to be income from an active business for purposes of ss. 129(6) and 125, this deeming rule does not apply for purposes of ss. 84.1(2.31) and (2.32).
If, for discussion purposes, it nonetheless were assumed that Realco carried on an active business, then in applying the second test, it would be necessary to determine if all or any portion of the FMV of the loan receivable was needed for the Opco shares to be considered as QSBCS. In other words, if Opco could meet all the conditions of having QSBCS by reference to the fair market value of other assets, that is, treating the loan receivable as an inactive asset, then Realco would not be a relevant group entity.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.6 under s. 84.1(2.31)(c)(iii).
CRA indicates that the continued-control test in s. 84.1(2.31)(f)(i) or (2.32)(g)(i) does not require that each member of the purchaser corp control group remain a child of the taxpayer
The intergenerational transfer rules include (in s. 84.1(2.31)(b)(ii) or s. 84.1(2.32)(b)(ii)) a requirement that one or more children of the taxpayer control the purchaser corporation at the time of the disposition; and (in in s. 84.1(2.31)(f)(i) or s. 84.1(2.32)(g)(i)) a requirement (the “continued-control test”) that during a specified time period following the disposition (e.g., 36 months under s. 84.1(2.31)(f)), the child or group of children continued to control the purchaser corporation.
CRA indicated that the continued-control test only requires that such control group have been children of taxpayer at the time of the taxpayer’s disposition, so that it would not matter if a member of such control group ceased to be a child of the taxpayer during the specified period, for example, because of divorce. For instance, if at the disposition time the purchaser corporation was owned equally by the taxpayer’s daughter and by her spouse, it would not matter if that couple divorced during the following specified period (assuming that they continued as the control group).
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.5 under s. 84.1(2.31)(f)(i).
CRA clarifies how its policy, to allow one member of a related group to file their T1134s, applies to a partnership
CRA’s published policy is to allow reporting entities that are members of the same group of related reporting entities to file a single T1134 report for all foreign affiliates for which they would otherwise have to file a T1134, provided that they belong to the same “related group” as defined in s. 251(4), have the same year-end, and report in Canadian currency (or the same functional currency).
CRA elaborated that if a partnership is a reporting entity (i.e., it has Canadian resident partners who are not exempt from Part I tax and who hold at least a 10% interest in the partnership's income or loss for the period), then this administrative relief will be extended to the partnership if at least one of its partners (or, if one of the partners is also a partnership, a partner of that partnership, and so on) is related to each of the other reporting entities forming a “related group” in respect of the same foreign affiliates.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.4 under s. 233.4(4).
CRA indicates that once a Canadian corp has even a fleeting direct equity percentage in an FA, a T1134 reporting obligation is triggered (subject to group-filing relief) for that year
On April 30, 2025, Canco rolled transferred all its shares of USCo under s. 85(1) to a newly-formed Canadian holding company (Holdco). Holdco, like Canco, had a June 30 year-end. On May 1, 2025, USCo was liquidated into Holdco so that Holdco now held US LLC, directly.
CRA noted that if a Canadian corporation has a direct equity percentage in a given foreign affiliate at any point during a year, it is required to file a T1134 return for that foreign affiliate. Accordingly, as both Canco and Holdco directly held the shares of USCo in their June 30, 2025 taxation years, both were reporting entities and required to file T1134 returns for those taxation years.
However, assuming that they met the conditions for administrative relief in this regard (i.e., they were members of a related group of reporting entities who filed their tax returns in Canadian dollars (or in the same functional currency) and had the same fiscal year-end) , they could designate either one of them to file a single T1134 as their representative.
CRA also noted that the organizational structure that must be reported in the T1134 is the one as it existed at the end of the reporting taxpayer's taxation year.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.3 under s. 233.4(2)(a).
CRA reconfirms that structuring to convert a personal-use to an investment-use loan is not contrary to the revised GAAR
In 2013-0477601E5, CRA indicated that, generally, interest would be deductible where an individual used proceeds from the sale of publicly traded common shares to pay down a mortgage on a personal residence and then took out a loan to repurchase identical shares, provided that there was a direct link between the borrowed funds and an eligible use. Having regard to the introduction of ss. 245(4.1) and (4.2), has this position changed?
CRA indicated that this continued to reflect its position – although, as usual, reaching a GAAR required a thorough analysis of all the facts and circumstances.
A similar question and answer appear at 9 October 2025 APFF Financial Planning Roundtable, Q.3.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.2 under s. 245(4.1).
CRA describes a ruling request that it considered to engage an abuse of the scheme of s. 80
We have provided the questions posed, and summaries of the preliminary oral responses given, at the December 2, 2025 Canadian Tax Foundation CRA Roundtable.
Q.1 concerned a CRA GAAR position.
In Year 1, a corporation resident in Canada ("Parentco") made a $1,000 interest-free loan to its wholly owned Canadian subsidiary ("Subco") and, in that year, Subco incurred a $1,000 non-capital loss.
For Year 2, Subco (which had become inactive) claimed the non-capital loss by implementing a loss consolidation arrangement with Parentco.
In Year 3, Parentco forgave the Subco loan and, immediately after such settlement, Subco was wound up into Parentco under s. 88(1), so that Parentco received all the property of Subco, having a nominal cost amount and FMV. Parentco claimed a capital loss of $1,000 on the loan settlement and Subco claimed the insolvency deduction under s. 61.3(1) to fully offset its inclusion under s. 80(13).
CRA indicated that it had refused to provide a favourable ruling for similar transactions. It noted that Subco benefited not only from a gain on the forgiveness of the loan but also from expenses and deductions related to the Subco loan, which generated the non-capital losses; and that this was contrary to the scheme of s. 80, as established in Lecavalier. Furthermore, two losses were being claimed regarding the same investment.
It considered this view to be consistent with Example 23 of IC88-2, Supp. 1 (respecting a corporation transferring all its assets to a wholly-owned subsidiary at stepped-up s. 85 agreed amounts so as to use its losses and so that its realization of a forgiven amount would apply to the Subco shares’ ACB rather than to more valuable tax attributes temporarily parked in Subco - followed by its amalgamation with Subco).
Regarding the Q.1 situation, CRA did not indicate whether the appropriate remedy would be to deny (i) the application of s. 61.3(1) to Subco, so that it would have an s. 80(13) tax liability that would flow through to Parentco on the wind-up (under s. 160 or otherwise), (ii) deny the interest deductions to Parentco under the loss consolidation arrangement or (iii) deny the capital loss to Parentco - although perhaps (i) would be the leading candidate, notwithstanding that the core object of s. 61.3(1) is merely to deal with a debtor that has no net assets.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.1 under s. 245(4).