News of Note
Bank of America – Federal Court of Appeal finds it reasonable of CRA to not extend an application deadline where the taxpayer failed to show due diligence
Email this ContentThe Bank applied pursuant to ETA s. 141.02(19)(b)(ii) to CRA for an extension to the time for being able to apply to use a method for calculating its input tax credits (ITCs) that produced a better result than what it otherwise would have been entitled to.
In dismissing the Bank’s appeal from a finding of the Federal Court that CRA’s rejection of this request was fair and reasonable, Mactavish JA found, regarding CRA’s finding that the Bank had failed to exercise the requisite degree of care respecting its filing obligations that would be expected of a sophisticated taxpayer, that “the Bank has not shown any reversible error with respect to this factually suffused finding” and also noted that “this Court has already determined that it is reasonable for the Minister to have regard to the diligence of a taxpayer in circumstances such as this: Denso Manufacturing … 2021 FCA 236”.
Neal Armstrong. Summary of Bank of America v. Canada (Attorney General), 2025 FCA 9 under ETA s. 141.02(19)(b)(ii).
We have translated 7 more CRA severed letters
We have translated a CRA ruling released three weeks ago and a further 6 CRA interpretations released in March and February of 2001. Their descriptors and links appear below.
These are additions to our set of 3,083 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).
CRA rules on a two-wing split-up net asset butterfly
CRA ruled on a straightforward split-up butterfly. The distributing corporation (DC) was owned by five siblings (with the two sisters being the only common shareholders) and held stock market portfolio (treated as investment property) and cash and near-cash property (defined to include “marketable securities (other than those held as portfolio investments)”.
The shareholders transferred their shares of DC on a s. 85 rollover basis to two transferee corporations (the TCs) formed respectively for four of the five siblings and for the second sister, the two types of property were transferred on a pro rata and net asset rollover basis to the two TCs for consideration including TC preferred shares, those preferred shares were redeemed for notes, the TCs immediately established their first taxation year-ends and DC was wound up into the TCs under s. 88(2) (with the redemption notes being extinguished by operation of law and with any remaining CDA account flushed out using s. 88(2)(b)(i)). The timing of the first year-ends ensured no Part IV tax circularity issues.
Neal Armstrong. Summary of 2024 Ruling 2024-1008821R3 F under s. 55(1) – distribution.
CRA revises its memorandum on objections
Points made in a significantly revised version of GST/HST Memorandum 31-0, Objections and Appeals issued back in May 2024 included:
- A notice of assessment can cover multiple reporting periods and, indeed, a “Notice of Assessment generally will cover an entire audit period” (suggesting that a multiplicity of objections need not be filed where CRA shows adjustments on a month-by-month basis attached to a global assessment notice).
- On an objection “the person is informed of discussions held between the appeals officer and the assessing area about the disputed assessment.”
- An objection can result in an “upward reassessment” (e.g., increasing the tax from what was objected to).
Neal Armstrong. Summaries of GST/HST Memorandum 31-0, Objections and Appeals, May 2024 under ETA s. 300(2), s. 301(1.1), s. 301(1.5) and s. 301(3).
CRA has released the final version of the 2024 APFF Roundtable
CRA has published the final versions of the 17 questions and answers of the (regular) 10 October 2024 APFF Roundtable. (The finalized 2024 APFF Financial Strategies and Instruments Roundtable severed letters have already been published.) There were only minor changes from the versions that were made available at the time (including a minor expansion of CRA's discussion of the Foix decision at Q.3 of the Roundtable - which for some reason was renumbered as Q.18 in the severed letter). The discussion of Foix in the written version of the 2024 CTF Annual Roundtable, Q.15 was shorter and blander.
For your convenience, the table below sets out the descriptors and links to the summaries, and translated questions and answers, which we prepared in October.
Doostyar – Federal Court of Appeal indicates that judgments should not be provided to the parties in draft for non-substantive comments
The Tax Court judge sent a draft judgment (disallowing the taxpayers’ appeal) to the parties and asked for their comments on any “typographical, grammatical, punctuation, or [any] similar error[s] or any omissions” and any “comments in respect of the written presentation of…[the] decision”, but not so as to revisit the substance of the decision. The taxpayers then asked the judge to receive and consider further submissions.
After confirming the judge’s refusal of this request (it “smack[ed] as an attempt to appeal to the Tax Court to revisit a decision it had already made”), Stratas JA stated:
It is for the Tax Court alone—not the parties—to vet its judgment and supporting reasons for typographical, grammatical, punctuation and similar errors.
Neal Armstrong. Summary of Doostyar v. Canada, 2025 FCA 6 under s. 171(1).
Income Tax Severed Letters 15 January 2025
This morning's release of 17 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
267 O'Connor – Tax Court of Canada finds that damages paid by the vendor under a failed realty sale did not generate ITCs notwithstanding some IP transferred to it
In the settlement of an action against it by a third party (“Starwood”) for a failure of a property sale agreement to Starwood to close, the appellant agreed to pay $450,000 to Starwood and Starwood agreed to provide a release and to hand over all its rezoning application plans and reports (reflecting that between the signing of the purchase agreement and the scheduled closing date, it had taken over the carriage of an OMB appeal regarding the property).
MacPhee J found that the $450,000 payment was, for the most part, compensation to Starwood for expenses incurred by it as a result of the failure of its purchase to close and that although “certain intellectual property was received pursuant to the settlement agreement” he was unable “to determine what portion of the $450,000 the Appellant paid to Starwood was for the assignment of Starwood’s rights, title and interest to Starwood’s rezoning application plans and reports.” S. 182(1) did not apply because the amount was paid by rather than to the supplier under the sale agreement.
Furthermore, the appellant had not satisfied the ITC documentary requirements in that it had not demonstrated that it had the GST registration number of the supplier (Starwood) by the time its return was filed (which “alone [was] fatal to the success of the appeal” and “there [was] not sufficient evidence to determine an amount of consideration to purchase intellectual property, nor the tax paid or payable”. Accordingly, no portion of the $450,000 payment generated an ITC to the appellant.
Neal Armstrong. Summaries of 267 O'Connor Limited v. The King, 2024 TCC 161 under ETA s. 169(1) and s. 169(4).
Boles – Tax Court of Canada finds that a mistaken judgment that the taxpayers’ activities were a business was not a s. 152(4)(a)(i) misrepresentation
Sommerfeldt J found that the activities of the taxpayers (a couple) in raising, breeding and showing dogs and engaging in dog-show judging were a hobby rather than a business, so that they should not have deducted their substantial losses in computing their income. However, he found that their taking the position in returns which were now statute-barred that they were carrying on a business was not a “misrepresentation” for the purposes of s. 152(4)(a)(i), stating:
[I]n Ver, Justice Bowman indicated that the question of whether an expenditure was made for a business or a personal purpose is a matter of judgment, and not the subject of a misrepresentation within the meaning of subparagraph 152(4)(a)(i) … . I adopt that view, except to the extent that either of the Appellants has acknowledged, or it is patently obvious, that a particular expenditure was incurred for a personal purpose … .
He went on to find that, even if there had been a misrepresentation, there was no neglect or carelessness, given that the taxpayers had “thoughtfully and carefully considered the nature of the Dog Activities, and, in consultation with their accountants, concluded that those activities were a business” – although there was carelessness in deducting those of the expenses which clearly were personal. Accordingly, the assessments for those years were reversed, except with regard to the clearly personal expenses.
The taxpayers were not subject to repeated-failure-to-file penalties under s. 162(2) since there was no evidence that a demand for the relevant returns had been made, nor that the Minister had already assessed a failure-to-file penalty for the relevant prior year’s return.
Neal Armstrong. Summaries of Boles v. The King, 2024 TCC 167 under s. 152(4)(a)(i), s. 3(a) – business, and s. 162(2).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in March of 2001. Their descriptors and links appear below.
These are additions to our set of 3,059 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).