News of Note
Income Tax Severed Letters 7 January 2026
Email this ContentThis morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Shopify – Federal Court of Appeal prohibits Shopify from deleting inactive accounts within the scope of appealed s. 231.2 requirements
Shopify (2025 FC 969) refused the authorization pursuant to s. 231.2(3) (and its ETA equivalent) of requirements for Shopify to provide information regarding certain persons who used the Shopify software platform to sell products and services online, given that the requirements’ wording were too vague and confusing for there to be an ascertainable group and because they were disproportional.
In connection with an appeal of that decision to the Court of Appeal, the Minister brought this motion for a preservation order that would prevent Shopify’s policy of deleting data from inactive accounts after two years from affecting accounts within the scope of the proposed requirements.
In authorizing this request (on modified terms), Goyette, J.A., noted that, in accordance with the RJR-MacDonald three-part test for granting an interlocutory injunction:
- There was a serious issue to be tried (although applicants for mandatory interlocutory injunctions must show a strong likelihood of success, here the substance of the proposed preservation order instead was to require Shopify to refrain from deleting information rather than to take any affirmative action).
- Without the order, the public interest would suffer irreparable harm (not granting the order would result in inactive accounts being deleted, thereby marring CRA verification of compliance, and this public interest should not be prejudiced by the two-year delay of the Minister in bringing this application); and
- The balance of convenience favoured the public interest (harm to Shopify in having to comply with the order was not demonstrated to be substantial, provided that the terms of the preservation order adopted restrictions respecting the included accounts that were apparent from a review of the Federal Court’s judgment).
Neal Armstrong. Summary of Minister of National Revenue v. Shopify Inc., 2025 FCA 232 under s. 231.2(3).
CRA indicates that a taxpayer generally can file a s. 45(3) election at any time up to the filing-due date for the year of the property’s “actual” disposition (including under s. 70(5))
In 2014, the taxpayer converted his income-producing property to his principal residence and, in 2017, he filed an election under s. 45(3) respecting that change of use – but in 2020 filed a T1 adjustment request requesting the rescinding of the election and reporting a capital gain arising from the 2014 change in use.
CRA noted that (in the absence of a Ministerial demand for the election), the election was required to be made by the taxpayer’s filing due date for the taxation year in which the property was actually disposed of by the taxpayer. Since the taxpayer filed the s. 45(3) election by the filing-due date for his 2017 return and, in 2017, he had not yet actually disposed of the property, the election had been timely filed.
Regarding the 2020 request, the revocation of the election could be permitted pursuant to s. 220(3.2) by the Minister. If accepted, the taxpayer would not be liable to a penalty under s. 220(3.5), as the revocation was made prior to the election’s due date.
Where the taxpayer had instead died in 2019, without having yet filed the s. 45(3) election, the date “the property is actually disposed of by the taxpayer” under s. 45(3) is considered to be the date of the deemed disposition of the property on the taxpayer’s death pursuant to s. 70(5). Therefore, the relevant filing due date for making the election would have been that for 2019 terminal return.
Neal Armstrong. Summary of 26 September 2025 Internal T.I. 2022-0923881I7 under s. 45(3).
CRA indicates that on a life insurance policy’s gratuitous transfer to a shareholder/executive, the policy’s ACB to that individual is increased by the excess of the policy’s FMV over the deemed s. 148(7) proceeds
A corporation, which was the owner and beneficiary of an insurance policy on the life of an individual who was a senior executive officer and a shareholder, transferred the policy to the executive upon retirement for no consideration. The policy particulars were:
- Death benefit: $1,000,000
- Adjusted cost base (ACB): $100,000
- Cash surrender value (CSV): $50,000
- Fair market value (FMV): $125,000
CRA confirmed that on such disposition, the corporation was deemed under s. 148(7) to receive proceeds of disposition equal to $100,000, being the greatest of the $50,000 CSV, the nil FMV of the consideration and the $100,000 ACB. Consequently, pursuant to s. 148(1), the corporation did not realize a policy gain (over the $100,000 ACB); and pursuant to s. 148(7)(b), the individual was deemed to acquire the policy at a cost equal to such deemed proceeds of $100,000. If the policy was received qua shareholder, there would be an income inclusion to the individual of $125,000 pursuant to s. 15(1); and if received qua employee, there would be an income inclusion of the $125,000 under s. 6(1)(a), with a corresponding deduction available to the corporation.
Additionally, there would be a further addition to the ACB of the policy to the individual (pursuant to variable C of the definition respecting “an amount in respect of the disposition of an interest in the policy … that was required to be included in computing the policyholder’s income”), equal to the excess of the FMV of the policy over the deemed proceeds of disposition under s. 148(7)(a), namely, of $25,000 ($125,000 FMV - $100,000 deemed proceeds), thereby increasing the ACB to $125,000.
Regarding the reporting requirements of the insurance company under Reg. 217(2), CRA stated:
Although not a party to the disposition, we would expect an insurer to be aware of any changes to the policyholder arising from a disposition of a life insurance policy to ensure that the policy continues to be in effect and make any necessary adjustments to the ACB as appropriate.
Neal Armstrong. Summary of 18 September 2025 CLHIA Roundtable Q. 6, 2025-1067961C6 under s. 148(9) – adjusted cost basis – C and s. 148(7).
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 3,418 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).
Re s. 129(1.2), CRA states that it “is particularly concerned with arrangements … where a corporation obtains a dividend refund without the related shareholder tax being paid”
As directed by the terms of the will of an individual (Shareholder A) holding the high-low preferred shares of Opco (having a redemption value of $1 million) and its common shares, the preferred shares were gifted on the individual’s death to an arm’s-length registered charity as an excepted gift (as per s. 118.1(19).) At that time Opco had an FMV of $5 million and a NERDTOH balance of $250,000. The redemption of the preferred shares in the hands of the charity resulted in a deemed dividend of $1 million and a dividend refund claim by Opco of $250,000.
Would s. 129(1.2) apply to deny the dividend refund?
After noting that it “is particularly concerned with arrangements, such as the current situation, where a corporation obtains a dividend refund without the related shareholder tax being paid,” CRA stated:
With respect to the current situation, the stated facts that:
- the terms of Shareholder A’s will expressly provide that the Preferred Shares are to be gifted to the Charity, without any apparent discretion afforded to the executor of the Estate; and
- Opco had sufficient assets to pay a taxable dividend and obtain a dividend refund even if the series of transactions was not carried out,
are not sufficient, in and by themselves, to conclude on whether or not the purpose test was satisfied in the circumstances. … [T]he determination of purpose is based on facts that are particular to a situation, including, but not limited to, the actions taken by the parties and their motivation.
Neal Armstrong. Summary of 18 September 2025 Roundtable, 2025-1067971C6 - CLHIA 2025 – Q.4 under s. 129(1.2).
CRA finds that s. 83(2.1) (then the s. 87(2)(z.1) exclusion) would apply where corporate life insurance proceeds (giving rise to a CDA addition) were used for a loan repayment rather than distribution
Opco A used the proceeds of a recently-purchased policy on the life of its principal shareholder (now deceased) to repay a $100,000 loan from an arm’s length corporation (Opco B), with Opco A then being sold for $10,000 by the surviving spouse to Opco B, amalgamated with it and with Amalco promptly paying a purported $100,000 capital dividend to its shareholder.
CRA indicated that s. 87(2)(z.1) excluded the $100,000 CDA of Opco A from the CDA of Amalco given that s. 83(2.1) would have deemed a purported capital dividend paid by Opco A immediately before the amalgamation to be a taxable dividend:
- First, “one of the main purposes of the acquisition of the shares of Opco A by Opco B was to acquire Opco A’s capital dividend account”.
- Second, s. 83(2.3) did not exclude the application of s. 83(2.1) because the proceeds of the policy were fully used by Opco A to repay the loan prior to the amalgamation, signifying that the proceeds were not used as described in s. 83(2.3), namely, to distribute the proceeds of a life insurance policy.
- Third, s. 83(2.4) also did not exclude the application of s. 83(2.1) because, pursuant to s. 83(2.4)(b), substantially all of the CDA account of Opco A consisted of amounts that were in its CDA account before it became related to Opco B.
Neal Armstrong. Summary of 18 September 2025 Roundtable, 2025-1067941C6 - CLHIA 2025 - Q.3 under s. 83(2.3).
CRA indicates that s. 163(2) can extend to false statements (not just returns) provided to CRA for ITA purposes
2010-0356511I7 found that a false invoice produced on audit did not directly engage s. 163(2). CRA indicated that this would no longer be its view in light of a 1998 amendment to s. 163(2), which replaced the reference to inter alia a false statement in a return (broadly defined to include a “statement or answer”) filed or made “as required by or under this Act or a regulation” with a reference to a false statement in a return filed or made “for the purposes of the Act.”
CRA indicated that in light inter alia of this amendment, which “broaden[ed] the application of the penalty … to a false statement or omission made ‘for the purposes of this Act’,” s. 163(2) could now extend, for example, to false documents submitted to support a request to amend a return.
Neal Armstrong. Summary of 24 June 2025 Internal T.I. 2022-0956161I7 under s. 163(2).
Income Tax Severed Letters 31 December 2025
This morning's release of five severed letters form the Income Tax Rulings Directorate is now available for your viewing.
Cohen – Federal Court refuses to provide a s. 231.7 compliance order where the taxpayers seemed cooperative but did not provide all the requested documents
CRA made an extensive demand for information (covering eight pages) pursuant to s. 231.1(1) to the individual respondent and related corporations. They then delivered some of the requested documents.
After noting that, per s. 231.5(2), a person must do everything required by ss. 231.1 and 231.2 “unless the person is unable to do so”, so that such “person must demonstrate reasonable efforts to satisfy the Court on a balance of probabilities that they are unable to produce the information” (para. 45), Saint-Fleur J went on to decline to grant a s. 231.7 compliance order, stating:
Here, the Respondent has provided a detailed list of all the documents and information provided by him and by the other Respondents respecting each item requested in the requests for information by the CRA. When an item was not delivered, the Respondent provided detailed justification and explanation of effort as to why it has not been delivered. Furthermore, the Respondents have provided … copies of 766 electronic files … .
… Considering the above and in light of the seriousness of the consequences for non-compliance … I am unable to conclude that the Respondents were uncooperative.
Neal Armstrong. Summary of Canada (National Revenue) v. Cohen, 2025 FC 2012 under s. 231.7.