News of Note

The taxpayer, in connection with changing the location of his employment in Toronto, moved his residence from Newmarket to Mississauga. Whether he could deduct almost $130,000 in relocation expenses turned on whether the reduction in commuting distance produced by his move exceeded 40 kilometers.

The taxpayer got from his new downtown office to his old home during rush hour (or the reverse, in the morning) following a circuitous route recommended by Google Maps (westward to Hwy. 427, north on Hwy. 400, then east on Hwy. 9) whereas the route proposed by the Crown was a more direct route (north on Hwy. 404, then west on Hwy. 9), but which per Google Maps was slower during rush hour.

In rejecting the Crown’s route and allowing the taxpayer's appeal, Bocock J stated (at para. 27) that “[t]he new norm of shortest normal route most people use deploys Google Maps to select such route.”

Neal Armstrong. Summary of De Kruyff v. The King, 2025 TCC 116 under s. 248(1) – eligible relocation – (d).

The settlement agreement between an employer and a terminated employee protected the employer against any claim in respect of failure to withhold income tax, CPP or EI. Was this a reportable transaction on the basis of being an avoidance transaction with a contractual protection hallmark?

Regarding that hallmark, CRA indicated that “[g]enerally, the person having contractual protection is the person that would be entitled to compensation in the event of a failure of the transaction to achieve a tax benefit” and that where an employer is protected by an indemnity clause like this “the contractual protection hallmark is unlikely to be triggered in most instances.” Presumably, this comment could reflect that the only tax “benefit” to the employer that is being protected by the indemnity is not bearing a 10% penalty under s. 227(8)(a) (assuming that the employee was resident.)

Regarding whether there was also an avoidance transaction, it noted that this is a “fact-driven determination” but went on to state:

Presumably, the main purpose of an employment settlement is to resolve a dispute between an employer and employee. In our view, the fact that damages are paid as a result of a settlement should not systematically lead to the conclusion that “one of the main purposes” of the settlement is to obtain a tax benefit. In situations where the parties negotiated in good faith and reached a principled settlement that provides for a proper characterization of the damages, it is unlikely that such settlement would qualify as an “avoidance transaction”.

However, it further indicated that a settlement could be reportable. For example, “the absence of legal or factual basis to the payment of non-taxable damages could lead to a determination that the settlement is an ‘avoidance transaction’.”

Neal Armstrong. Summaries of 7 June 2024 External T.I. 2024-1006831E5 under s. 237.3(1) - contractual protection - (a)(i)(A), - avoidance transaction.

CRA discussed how a repeated application of ss. 251(2)(b)(ii) and (iii) would establish that a corporation (Opco), owned equally by Father and Uncle, was related to a corporation (Newco), owned equally by five holding companies.

The first holding company was owned equally by the son and daughter-in-law of Father. Each of two of the holding companies was wholly-owned by one of the two brothers of the daughter-in-law. One of the holding companies was owned by the brother of the son, and the fifth was owned by an unrelated individual.

As usual, you can go to the linked summary for a more detailed discussion.

Neal Armstrong. Summary of 3 June 2025 External T.I. 2025-1064821E5 F under s. 251(2)(b)(iii).

It is proposed that a Canadian corporate purchaser indirectly owned by GIC (the tax-exempt investing arm of the Singapore government) will acquire all the units of InterRent REIT (other than some units retained by management and others) for $13.35 per unit in cash. Although there is considerable optionality in the steps permitted under the Ontario Plan of Arrangement, it is generally intended that the Property LPs in which the Canadian apartment buildings are held will step up the capital cost of those buildings by doing transfers of those properties (as preliminary steps in the Plan of Arrangement) to other newly-formed subsidiary LPs so as to realize significant recapture of depreciation and capital gains.

As the REIT will not make an election under s. 251.2(6), it will have a new taxation year starting at the commencement of the day of implementation of the Plan of Arrangement. This ensures that all income realized by the subsidiary LPs (which likely will be wound-up under s. 98(3)) will be realized by the REIT in that "Arrangement Taxation Year." That recapture income and capital gains will be distributed to the unit holders as part of the Arrangement, and an additional return of capital distribution will occur to provide a “cushion”. This special distribution very well may be accomplished through the issuance of additional REIT units, in which case there would be an immediate consolidation back to the pre-Arrangement number of units.

It is estimated that the recapture and other ordinary income allocated to the unit holders will amount to between $2.85 and $3.30 per unit. In addition, non-resident unit holders would also be subject to withholding tax on the distribution to them of capital gains and returns of capital.

It is suggested that unit holders may wish to consider selling their units on the TSX, with the settlement date to occur prior to the effective date of the Plan of Arrangement.

Neal Armstrong. Summary of InterRent Management Information Circular, dated July 24, 2025 under Mergers & Acquisitions – REIT/LP Acquisitions - Trust acquisitions by corporations.