News of Note
Madison Pacific – Federal Court of Appeal finds that Deans Knight applied to a corporate restart plan
Email this ContentMadison 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).
CRA indicates that legitimate debt financing of an NPO cooperative by its members can be consistent with the s. 149(1)(l) conditions
Regarding whether the receipt of loans by a Quebec cooperative (a mooted NPO) from members (as well as from non-members) satisfied the requirement in s. 149(1)(l) that “no part of the income of which was payable to, or was otherwise available for the personal benefit of, any proprietor, member or shareholder,” CRA stated that such an interest payment “should not, in and of itself, prevent the Co-operative from qualifying as a tax-exempt NPO, provided the financing is legitimate, is not a scheme to distribute surplus funds to its members, furthers the Co-operative's exempt purposes, and the interest rate is reasonable.”
Regarding the payment of “interest” on any preferred shares held by members, this would constitute in substance a distribution of the cooperative’s profits to them and, thus, be offside – and indeed, the mere issuance by it of such shares would put it offside even if no such interest was paid.
Neal Armstrong. Summary of 7 January 2025 External T.I. 2022-0945291E5 F under s. 149(1)(l).
Vorsteveldt – taxpayers are challenging the CRA administration of the 2/3 CGIR
Ms. Vorsteveldt, who realized a capital gain on a July 2024 sale of an Ontario property, has brought an application in the Federal Court challenging the 7 January 2025 decision of CRA to administer the Act as if the capital gains inclusion rate increase were in effect, on the grounds inter alia that this would be contrary to the rule of law.
Neal Armstrong. Summary of Vorsteveldt v. A.G. (Canada), 24 January 2025 Application pursuant to ss. 18 and 18.1 of the Federal Courts Act under s. 38(a) (see also Pelco Holdings v. A.G. (Canada), 24 January 2025 Application pursuant to ss. 18 and 18.1 of the Federal Courts Act).
The Joint Committee recommends clarification that there be no adverse consequences to ignoring the CGIR proposals when filing your 2024 returns
While the proposals to generally increase the capital gains inclusion rate (the “Capital Gains Proposals”) were not tabled in Parliament in the form of a bill before Parliament was prorogued on January 6, 2025 and there is substantial possibility that they will never be enacted, Finance and CRA have confirmed that the ITA will be administered as though they were enacted.
This uncertainty as to enactment is unlikely to be resolved prior to the time at which many taxpayers will be required to pay tax and file for their 2024 taxation years. They will have the unattractive choices of: paying tax (and filing their returns) on the basis of existing law, and filing an amendment with additional tax payable in the event the Capital Gains Proposals are enacted with retroactive effect; or paying and filing on the basis of the proposals, and then filing an amendment (or objecting to their own filing) - and applying for a refund if the proposals are withdrawn.
The Joint Committee recommends that: the Government announce that the Capital Gains Proposals, if enacted, will only be applicable to gains realized after the relevant bill is introduced in Parliament; or (failing that) the CRA provide administrative relief by waiving arrears interest and confirming (for greater certainty) that penalties are not applicable to taxpayers paying tax and filing on the basis of existing legislation– until at least the date of the introduction of the relevant bill in Parliament.
Neal Armstrong. Summary of Joint Committee, Federal Budget 2024 – Capital Gains Inclusion Rate, 22 January 2025 Joint Committee submission under s. 38(a).
CRA finds that there is no disposition where crypto is deposited with or staked through a platform that holds the crypto in trust
A Canadian-resident taxpayer deposits crypto-assets held on capital account with a custodial centralized crypto-asset trading platform (the “Platform”) that is compliant with the requirements of the Canadian Securities Administrators (CSA) including that crypto-assets deposited with a Platform are held separately from the Platform’s own assets and in trust for each respective investor. The taxpayer may also “stake” crypto-assets through the platform, i.e., validating transactions in respect of a crypto-asset and adding them to a publicly distributed ledger through proof-of-stake blockchain protocols.
In finding that neither such deposits nor staking entailed a disposition, CRA stated:
[I]t is our understanding that, as a crypto-asset trading platform that is compliant with the CSA’s requirements, the Platform does not acquire beneficial ownership of any of the Deposited Crypto or Staked Crypto. Instead, users retain beneficial ownership of the Deposited Crypto and Staked Crypto at all relevant times.
Neal Armstrong. Summaries of 17 January 2025 Internal T.I. 2024-1031821I7 under s. 248(1) – disposition and s. 9 – timing.
Income Tax Severed Letters 22 January 2025
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA releases a new Memorandum on the IPP provincial place-of-supply rules
CRA has published a GST/HST Memorandum (supplanting draft B-103) on the rules (other than some specialized rules) governing the determination of the province of supply of intangible personal property.
Various of these rules turn in significant part on identifying the most relevant address of the recipient received by the supplier in the ordinary course of its business. CRA indicates that it generally regards the contracting address (i.e., the address of the recipient from which it hired the supplier) to have primacy over other addresses (such as a billing address, or the address of the office with the most operating contact), assuming that the contracting address is in Canada.
CRA provides 33 examples illustrating how it sees the different rules operating. For example, it provides some examples of where the supply will be deemed to occur at the highest provincial rate:
Example 10
- An Ontario company licenses, to a Quebec company, copyright that can only be used in Ontario and Nova Scotia and, in the ordinary course of business, obtains a Quebec address of the recipient. Since that address in not in a participating province (see Reg. 6(2)(b)(ii)) nor in a province in which the copyright may be used (see Reg. 6(2)(b)(iii)), HST is imposed under Reg. 6(2)(c) at the Nova Scotia rate, i.e., the highest rate for the participating provinces in which the copyright may be used.
Example 33
- A registered supplier with an Ontario business address, which supplies monthly subscriptions to its digitized website content without restrictions on where it may be used, receives in the ordinary course the Texas home address of a non-resident regular GST/HST registrant. Since in the ordinary course of business, the supplier has not obtained a Canadian address of the non-resident, and the content may be used anywhere in Canada, the province of supply under Reg. 11 is whichever of Newfoundland, New Brunswick, PEI and (subject to the upcoming rate reduction) Nova Scotia that is closest in proximity to the supplier’s business address.
Neal Armstrong. Summaries of GST/HST Memorandum 3-3-5 “Place of Supply in a Province – General Rules for Intangible Personal Property” January 2025 under New Harmonized Value-Added Tax System Regulations, s. 2 – Canadian rights, s. 6(1), s. 6(2)(a), s. 6(2)(b)(i)(A), s. 6(2)(b)(i)(B), s. 6(2)(b)(i)(C), s. 6(2)(c), s. 8(b)(i)(A), s. 8(b)(i)(B) and s. 11.