News of Note

We have translated 8 more CRA severed letters

We have translated a CRA interpretation and ruling released last week and a further 6 CRA interpretations released in October and September of 2000. Their descriptors and links appear below.

These are additions to our set of 3,167 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
2025-04-09 2024 Ruling 2023-0998291R3 F - Multi-wings split-up net asset butterfly 55(3)(b) Income Tax Act - Section 55 - Subsection 55(1) - Distribution split-up butterfly between a divorced couple where excess debt is allocated to land rather than building to produce capital gains treatment
Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(b) excess debt allocated on s. 85(1) transfer of land and building to the land so as to produce capital gains rather than recapture
17 January 2025 Internal T.I. 2024-1029791I7 F - SSUC - Rémunération de la haute direction / CEWS - Income Tax Act - Section 125.7 - Subsection 125.7(1) - Executive Remuneration no adjustments are made to an eligible entity's Statement of Executive Compensation for NEOs filed pursuant to NI 51-102 for CEWS repayment purposes
Income Tax Act - Section 125.7 - Subsection 125.7(14) repayment based on NI 51-102 statements, without adjustments
2000-10-13 18 September 2000 External T.I. 2000-0026805 F - PAIEMENTS DANS LE CADRE D'UN CONGEDIEMENT Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance payment in lieu of reasonable notice was s. 5 employment income
Income Tax Regulations - Regulation 102 - Subsection 102(1) reimbursed legal costs of dismissed employee paid by the employer are not subject to withholding if such costs were deductible under s. 8(1)(b)
3 October 2000 Internal T.I. 2000-0039997 F - VENDEAU-CONFERENCE ET CONGRES Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(f) - Subparagraph 8(1)(f)(v) costs of presentations to improve skills of salespeople who generated commissions to the taxpayer were not capital expenditures, cf. cost of attending conference
20 September 2000 External T.I. 2000-0043435 F - Associé quittant société de personnes Income Tax Act - Section 53 - Subsection 53(1) - Paragraph 53(1)(e) - Subparagraph 53(1)(e)(i) adjustments to avoid double taxation on a completed withdrawal from a partnership are considered first by the TSO, generally as part of an audit
2000-09-29 14 September 2000 External T.I. 2000-0037085 F - ALLOCATION DE RETRAITE Income Tax Act - Section 248 - Subsection 248(1) - Retiring Allowance a lump sum amount paid in satisfaction of salary insurance benefits could not be transmuted into a retiring allowance
Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(f) a lump sum paid in satisfaction of an insurer's obligations under a wage loss replacement plan were taxable irrespective of whether paid as a lump sum and via the employer
Income Tax Act - Section 153 - Subsection 153(1) - Paragraph 153(1)(a) lump sum wage loss payments paid by an insurance company to the employer for on-payment were subject to source deductions
14 September 2000 External T.I. 2000-0023515 F - TAXE DE VENTE AVANTAGE IMPOSABLE Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(f) payment by employer of sales tax on insurance premiums under an employee-funded sickness or accident insurance plan did not taint the plan
Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) payment by employer of sales tax on insurance premiums under an employee-funded sickness or accident insurance plan is a taxable benefit
2000-09-15 11 September 2000 External T.I. 2000-0045115 F - FERR TRANSFERT Income Tax Act - Section 60 - Paragraph 60(l) an individual's spouse may make a transfer from a spousal RRIF a non-spousal RRIF of the spouse (which then becomes a spousal RRIF)
Income Tax Act - Section 146.3 - Subsection 146.3(5.1) spousal RRIF status has relevance only for purposes of s. 146.3(5.1)

CRA rules on a split-up butterfly between a divorced couple where excess debt is allocated to land rather than building to produce capital gains treatment

In order to accomplish a multi-wing split-up net asset butterfly of a private corporation (DC) owned by a divorced couple, they will transfer their common shares of DC to two new transferee corporations (TC1 and TC2), then DC will distribute each of the two rental properties, along with cash assets, to the respective TC in consideration for the assumption of liabilities (including shareholder advances and mortgage debt) and the issuance of TC preferred shares. Such preferred shares will then be redeemed for notes, and such notes will then be extinguished by operation of law on the winding-up of DC into TC1 and TC2 (but following the establishing of the first year ends of TC1 and TC2, to avoid Part IV tax circularity).

The DC debt likely exceeds the cost amounts of its assets. The sole consideration for the cash transfers will be debt assumptions, the buildings will be transferred on a full s. 85(1) rollover basis (i.e., debt assumed only up to their cost amounts, so that there is no recapture) and the balance of the assumed debt will be allocated to the transferred land so that the agreed amount therefor will produce (consistently with s. 85(1)(e.3)) the recognition of capital gains by DC (and resulting Part IV tax under s. 186(1)(b) to the TCs on the DC winding-up.)

Neal Armstrong. Summary of 2024 Ruling 2023-0998291R3 F under s. 55(1) – distribution.

CRA notes the practical difficulties faced by an immigrant to Canada holding a life insurance policy

CRA noted that a non-resident who immigrated to Canada while holding a policy, with a life insurance component, to secure a mortgage on a house would not be able to himself compute whether the policy was an exempt policy and what the policy gain would be when the policy matured in his hands as a Canadian resident, as the necessary information would be in the hands of the foreign issuer of the policy.

Since the policy did not constitute a "life insurance policy in Canada" as defined in s. 138(12), i.e., it was issued while the insured was not resident in Canada, ss. 128.1(1)(b) and (c) applied on the taxpayer's immigration to Canada so that the cost base to him of the policy was equal to its fair market value upon entering Canada. Accordingly, such fair market value cost would be taken into account for the purposes of computing any accrual under s. 12.2(1) (based on any excess of the accumulating fund over the ACB), if the policy was not an exempt policy.

Neal Armstrong. Summary of 27 January 2025 Internal T.I. 2024-1025011I7 under s. 12.2(1).

CRA concludes that no adjustments are made to an eligible entity's Statement of Executive Compensation for NEOs filed pursuant to NI 51-102 for CEWS repayment purposes

Ss. 125.7(14) and (14.1) could require exchange-listed eligible entities to repay all or part of the CEWS they had received based inter alia on the excess of their executive remuneration over the 2019 base level.

CRA concluded that the “executive remuneration” (as defined in para. (a) of the definition in s. 125.7(1)) of an eligible entity was the total amount of compensation that is reported in the eligible entity's Statement of Executive Compensation for Named Executive Officers filed pursuant to National Instrument 51-102 without adjustment - so that, contrary to the eligible entity’s submission to CRA, this amount could include compensation for more than five Named Executive Officers.

Neal Armstrong. Summary of 17 January 2025 Internal T.I. 2024-1029791I7 F under s. 125.7(1) – executive remuneration.

Galea – Privy Council finds that whether an activity qualifies as “carried on with a view to profit" turns on the taxpayer’s subjective intention

Whether the taxpayer could deduct his 92% share of the losses incurred by a Mauritius partnership (of which he was the dominant partner) from his other sources of income turned on whether the partnership was carrying on a “business,” whose definition in the Mauritian Income Tax Act 1995 relevantly referred to "any trade … or undertaking, or any other income earning activity, carried on with a view to profit." The partnership employed six people to manage its 200 acres of mountainous terrain and generate revenues from organizing annual hunts for deer on the lands (as well as from sales of live monkeys).

Before the Board, both parties agreed that, based on Grieve, [1984] 1 NZLR 101, Backman, and Ingenious Games (no mention was made of Stewart or Paletta), the question as to whether the activities of the partnership were carried on “with a view to profit” turned on the taxpayer’s subjective intention, and that the aim to make a profit need not be the sole or main aim and it could be ancillary.

Dame Philippa Whipple found that the Supreme Court of Mauritius had committed an error of law in deciding against the taxpayer on the basis that the expression "with a view to profit," although not referring to immediate profit, meant “an activity carried on with a reasonable expectation of making a profit in [the] near future.” Furthermore, she found that the panels below had not taken issue with the credibility of the taxpayer, who had testified that he had an intention of making a profit (although, in fact, the partnership had sustained significant and continued losses for the 10 years under review). Accordingly, the taxpayer's appeal was allowed.

Neal Armstrong. Summary of Galea v The Assessment Review Committee & Anor (Mauritius) [2025] UKPC 17 under s. 3(a) – business.

Income Tax Severed Letters 9 April 2025

This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.

CRA provides instances where it may require the production of personal bank statements

After CRA was given the example of auditors auditing a private company and asking for the personal banking records of all the shareholders, CRA listed the following as situations where it may require personal banking information, which it considers itself authorized to do pursuant to s. 231.1(1):

  • Where it conducts an indirect verification of income, in which case it must obtain the personal banking records of the shareholders of the closely held corporation, as well as their spouses and common law partners, and all contributing members of each household unit.
  • Where it is unable to rely on accounting records due to weak internal controls or the absence of segregation of duties.
  • When inconsistencies are noted between the apparent lifestyle of the taxpayer and the reported income.
  • In order to verify transactions between the corporation and the shareholder.

Neal Armstrong. Summary of 2024 Alberta CPA Roundtable, Q.8(a) under s. 231.1(1).

CRA indicates that it has no statutory authority to postpone collection of source deductions

CRA indicated that the Income Tax Act, Employment Insurance Act and Canada Pension Plan Act contain no equivalent provisions to s. 314(2) or 315(3) of the Excise Tax Act regarding the collection of source deduction trust funds, so that there is no statutory authority providing for the postponement of collection action on amounts owing for such amounts. However, CRA Collections has the administrative authority to withdraw any collection actions, such as garnishment, upon entering into a payment arrangement with the taxpayer.

Neal Armstrong. Summaries of 2024 Alberta CPA Roundtable, Q.3 under ITA s. 222(2) and ETA s. 315(3).

Total Energy – Federal Court of Appeal confirms that the use of losses of an insolvent public company by a SIFT trust was an abuse of s. 111(5)

In September 2007, a company (“Nexia”), which traded in loss companies, acquired all of non-voting common shares of an insolvent public corporation (“Biomerge”) (representing 80% of its equity) and 45% of its voting common shares. In May 2009, a plan of arrangement was implemented under which the units of an income fund (“Total”), which was becoming subject to tax under the “SIFT” rules, were exchanged for new common shares of Biomerge, the existing voting common shares of Biomerge were largely cashed-out, and Total was wound-up into Biomerge (now, “New Total”) pursuant to s. 88.1(2). The former Total unitholders held 99.8% of the New Total equity.

In confirming the decision below that these transactions were an abuse of s. 111(5), Stratas JA indicated that:

  • It was immaterial that Deans Knight did not deal with trust conversions, as the “object, spirit, and purpose of s. 111(5) does not change depending on the facts of the particular case nor on the status of the acquiror.”
  • It was also immaterial that s. 256(7)(c)(i) (dealing specifically with a transaction of this type) was added only subsequently (“Deans Knight … did not look at other provisions enacted after s. 111(5) in order to determine the object, spirit, and purpose of s. 111(5).”
  • The Tax Court had appropriately found “that this particular series of transactions frustrates the object, spirit, and purpose of s. 111(5), which is [quoting Deans Knight] ‘to prevent corporations from being acquired by unrelated parties in order to deduct their unused losses against income from another business for the benefit of new shareholders’."

Neal Armstrong. Summary of Total Energy Services Inc. v. Canada, 2025 FCA 77 under s. 245(4).

We have translated 8 more CRA interpretations

We have translated two CRA interpretations released last week and a further 6 CRA interpretations released in November and October of 2000. Their descriptors and links appear below.

These are additions to our set of 3,159 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
2025-04-02 19 February 2025 External T.I. 2018-0744821E5 F - Régime d’assurance collective - groupe de personne Income Tax Act - Section 6 - Subsection 6(1) - Paragraph 6(1)(a) - Subparagraph 6(1)(a)(i) for a 2-person plan, a higher level of benefits for the majority shareholder would suggest that there was an individual policy for him, rather than being a group plan component
Income Tax Act - Section 15 - Subsection 15(1) rebuttable presumption that benefits of shareholder-employees from disability plan premiums were taxable/ meaning of "contemplated" shareholder
11 March 2025 External T.I. 2020-0845931E5 F - Transfert d’une propriété intellectuelle Income Tax Act - Section 9 - Capital Gain vs. Profit - Patents and Know-How the consequences of a sale of IP by a partnership for the benefit of a university and its researchers might be addressed in a ruling
2000-11-10 25 October 2000 External T.I. 2000-0017065 F - CONVENTION DE RETRAITE ET ASSURANCE Income Tax Act - Section 207.6 - Subsection 207.6(2) no Pt. XI.3 tax to RCA trust on withdrawals from the life insurance policy funding the RCA
13 October 2000 Internal T.I. 2000-0042477 F - depenses d'emploi-vendeur valeurs mobiliers Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(f) - Subparagraph 8(1)(f)(ii) requirement to perform duties away from the office can be implied
18 September 2000 Internal T.I. 2000-0043647 F - Perte transfert bâtiment personne affiliée Income Tax Act - Section 13 - Subsection 13(21.2) - Paragraph 13(21.2)(b) proceeds of disposition of a building are determined first under s. 13(21.1) before applying s. 13(21.2)(b)
Income Tax Act - Section 13 - Subsection 13(21.1) s. 13(21.1) applied first before stop-loss rule in s. 13(21.2) applied
2000-10-27 19 October 2000 External T.I. 2000-0027795 F - SOCIETES PRIVEES SOUS CONTROLE CDN Income Tax Act - Section 125 - Subsection 125(3) corporations controlled by the provincial Crown, required to share their business limit
Income Tax Act - Section 181.5 - Subsection 181.5(6) corporations controlled by the provincial Crown would not be required to share their capital deduction
Income Tax Act - Section 125 - Subsection 125(7) - Canadian-Controlled Private Corporation corporations controlled by the provincial Crown treated as CCPCs
Income Tax Act - Section 248 - Subsection 248(1) - Person provincial Crown is a person
23 October 2000 External T.I. 2000-0038305 F - REMBOURSEMENT DE PRIME CONJOINT MEME SEXE Income Tax Act - Section 146 - Subsection 146(8.1) election to have the deceased by a common-law partner could be made with deceased’s executor, thereby enabling a s. 146(8.1) election
2000-10-13 2 October 2000 External T.I. 2000-0015825 F - ACTIFS AUX FINS DE LA LOI Income Tax Act - Section 110.6 - Subsection 110.6(1) - Qualified Small Business Corporation Share - Paragraph (c) a future income tax asset (including one not recognized on the balance sheet) must be taken into account for QSBCS and SBC purposes, but is not used in the business
Income Tax Act - Section 248 - Subsection 248(1) - Small Business Corporation a future income tax asset is an asset for QSBCS and SBC purposes, but is not used in the business

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