News of Note
St-Joseph – Quebec Court of Appeal finds that the transformation of 2 floors of commercial building to residential use did not qualify as a “termination” of commercial activity for QST purposes
Email this ContentSt-Joseph incurred costs in converting the 1st and 2nd floors of a 12-storey mixed-use tower from commercial rental use into rental seniors’ residences (RSRs). It argued based on the QSTA equivalent of ETA s. 141.1(3)(a) that it had incurred the costs “in connection with the … termination of a commercial activity” of it, so that such costs were deemed to have been incurred in the course of its commercial activity, thereby entitling it to input tax refunds under the Quebec equivalent of ETA s. 169(1) – B(c).
In rejecting this position and before dismissing St-Joseph’s appeal, the Court stated:
[Its] argument … fails to explain how the transformation aimed at a new activity is, in itself, related to the termination of the previous activity.
… [T]he expenses for the renovation and transformation into an RSR were not related to the termination of the commercial rental activity … .
Neal Armstrong. Summary of St-Joseph Immobilier inc. v. Agence du revenu du Québec, 2025 QCCA 745 under ETA s. 141.1(3)(a).
CRA finds that a vendor’s disclosing on its invoices the amount of meal allowances paid to its sales people transferred the 50% s. 67.1 denial onto the purchasers
S. 67.1(1) generally grinds the deduction for amounts payable in respect of the human consumption of food or beverages by 50% thereof. However s. 67.1(2)(c) provides an exception for:
“an amount for which the person is compensated and the amount of the compensation is reasonable and specifically identified in writing to the person paying the compensation”.
The taxpayer, which sold goods for a fixed price payable in instalments, paid reasonable meal allowances to its employees for their travel in connection with the sales (e.g., installations). These allowances were not disclosed to the purchasers except that the interim invoices for the instalments contained a note, for information purposes only, setting out the cumulative amount of the meal allowances paid to date.
Before concluding that (by virtue of the exception in s. 67.1(2)(c)) s. 67.1(1) did not limit the deduction to the taxpayer for its incurring of the meal allowances and that such 50% denial instead applied to the purchasers respecting the cumulative amount of the meal allowances referred to in the interim invoice note, CRA indicated:
- The interim billing payments of the purchasers were intended to pay or reimburse the taxpayer for the costs incurred in performing the contract, including related reasonable meal allowances; and it was unnecessary to specify their amount in the contracts or for them to be billed separately.
- A note on an invoice allowing a purchaser to determine the amount for food or beverages that was included in the total amount invoiced was sufficient to satisfy the “specifically identified in writing” requirement of s. 67.1(2)(c).
- In light of the broad interpretation of “in respect of”, the cumulative amount of reasonable meal allowances paid or payable to date referred to in such interim invoices note disclosure was “an amount paid or payable in respect of the human consumption of food or beverages” for the purposes of the application of s. 67.1(1) to the purchasers.
Will purchase agreements start prohibiting the vendor from making any disclosure of any meal allowances incurred by it?
Neal Armstrong. Summary of 21 February 2025 Internal T.I. 2021-0902871I7 F under s. 67.1(2)(c).
CRA refers to some guidelines applied by it in considering financial-hardship requests for excess withdrawals from a PGAP RDSP
For a registered disability savings plan (“RDSP”) that is a primarily government assisted plan (a “PGAP”), i.e., government contributions exceed plan holder contributions, annual withdrawals are limited to 10% of the value in the RDSP at the beginning of the year – except that CRA has indicated that it may permit withdrawal requests above that limit in circumstances of financial hardship where it is just and equitable to do so.
CRA referred to three of its financial-hardship guidelines in this regard:
- Whether the RDSP beneficiary would suffer significant hardship, loss or disadvantage from a refused waiver, e.g., failure to meet the basic necessities of life, or harm to health.
- Whether the granting of the waiver would negatively impact the financial viability of the trust, e.g., referencing impact on family members or caregivers who rely on the trust’s integrity for planning and support.
- Whether the granting of the waiver is consistent with the legislative intent; for example, the RDSP program is not intended to help anyone other than the beneficiary.
CRA indicated that it also has a general guideline that the plan holder must also be the plan beneficiary, given that most waiver requests received, where the holder and beneficiary are not the same individual, are clearly requests to help plan holders who are having financial hardship issues themselves, and not the RDSP beneficiary. However, where the holder and the beneficiary are not the same individual, and the RDSP issuer nonetheless is of the view that the beneficiary is experiencing financial hardship and that a waiver is in the beneficiary's best interests, the issuer is welcome to send a waiver request to CRA explaining why the request warrants an exception to this guideline.
Neal Armstrong. Summary of 17 June 2025 STEP Roundtable, Q.5 under s. 146.4(4)(j).
CRA indicates that being the beneficiary of a QDT trust would not preclude an individual from making a preferred beneficiary election with a “regular” trust
A resident individual, eligible for the disability tax credit, and the beneficiary of a qualified disability trust (“QDT”) as defined in s. 122(3), also is a beneficiary of a “regular” trust that is not a QDT.
After noting that the individual could qualify as a “preferred beneficiary” if eligible to claim the disability tax credit, among other requirements, CRA indicated that individual being a beneficiary of the QDT would not preclude the regular trust and the individual from making a preferred beneficiary election (assuming the usual conditions were satisfied.)
Neal Armstrong. Summary of 17 June 2025 STEP Roundtable, Q.4 under s. 104(14).
CRA describes how a bare trust that was not required to file in its terminal year can communicate its “closed” status
A bare trust filed a T3 return (including Sched. 15) for its 2023 tax year prior to the CRA announcements that bare trust returns were not required for the 2023 – then the 2024 - tax year. The bare trust ceased to exist in 2024 so that it will never file a final T3 return. How can it communicate so that it is no longer considered a required filer?
CRA indicated that the trustee may:
(i) send a letter to the trust tax centre indicating that the bare trust has ceased to exist, and providing the account name and number, and the date of trust termination; or
(ii) file a final T3 return for the 2024 tax year with the date on which the bare trust ceased to exist.
Neal Armstrong. Summary of 17 June 2025 STEP Roundtable, Q.3 under s. 150(1.2).
CRA indicates that the parents referred to in the ss. 84.1(2.31)/(2.32) rules can be trustees of a trust holding the purchaser corporation or contingent residuary beneficiaries of such trust
Can shares (which do not amount to control) of the purchaser corporation referred to in s. 84.1(2.31) or (2.32) be held by a trust where:
- the parent is a contingent beneficiary in the event of death of a child or all members of the child group, or
- the parent and the parent’s spouse or common-law partner are sole trustees or a majority of the trustees.
CRA noted that the context of this question was the rules in ss. 84.1(2.31)/(2.32)(d) and (e) which provide that the parents, from the time of the disposition of the subject shares, cannot own, directly or indirectly, 50% or more of the shares of any class of the purchaser corporation or the subject corporation other than certain non-voting preferred shares and that, within 36 months of the disposition, must have ceased owning, directly or indirectly, any shares of the purchaser corporation or the subject corporation other than those certain non-voting preferred shares.[
Turning then to the look-through rule in s. 84.1(2.3)(c)(ii) as to the meaning of “own, directly or indirectly,” CRA indicated that it would not consider a person to have an interest in a trust if that person's interest depended solely on the occurrence of an uncertain event, such as a child predeceasing a parent so that, during the lifetime of such child or relevant members of the child group, the parent with such contingent interest would not be considered to own any shares of the purchaser corporation held by the trust.
Regarding the parents as trustees, CRA indicated that it would not consider them in such capacity to own shares of the purchaser corporation for purposes of the share ownership limitations in s. 84.1(2.31)(d) and (e), and in ss. 84.1(2.32)(d) to (f). It would apply the look-through rule in s. 84.1(2.3)(c)(ii) and, if applicable, the deeming rule in respect of discretionary interests in s. 84.1(2.3)(d), to determine who owned directly or indirectly any property held by the trust.
Neal Armstrong. Summaries of 17 June 2025 STEP Roundtable, Q.2 under s. 84.1(2.3)(c)(ii) and s. 84.1(2.31)(d).
CRA indicates that the children receiving an intergenerational transfer may control the purchaser corporation indirectly or as trustees of a trust
Our 2025 STEP Roundtable page - which provides the questions posed, and summaries of the preliminary oral responses given, at the 2025 STEP CRA Roundtable held on Tuesday – is now available.
Q.1 concerned the requirement in the intergenerational transfer rules in ss. 84.1(2.31) and (2.32) regarding continued control by the child group of the purchaser corporation. CRA indicated that the child group may own the purchaser corporation through one or more holding companies owned by them, noting that it was not required that they own shares directly in the purchaser corporation and that the concept of control included indirect control.
Regarding whether shares of the purchaser corporation could be held in a trust under which the only beneficiaries were members of the child group, CRA noted that the focus should instead be on who the trustees of the trust were, as it was the trustees who would control the purchaser corporation. In this regard, CRA noted its position that, in the absence of evidence to the contrary, it considered there to be a presumption that all the trustees would constitute a group, so that generally all such trustees would need to be members of the child group.
Neal Armstrong. Summary of 17 June 2025 STEP Roundtable, Q.1 under s. 84.1(2.31)(b)(ii).
Income Tax Severed Letters 18 June 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Fournier-Giguère – Federal Court of Appeal confirms that individuals deriving a sustained and significant income from full-time poker gambling were engaged in a business
The three taxpayers, who were friends, were reassessed to include income from their poker gambling (of the type Texas Hold’em without limit) for three to five taxation years (depending on the taxpayer, with none of the years a loss year), falling in the period 2008 to 2012, of $5,241,025 for Mr. D’Auteuil, $3,219,074 for Mr. Bérubé, and $1,450,000 for Mr. Fournier-Giguère.
LeBlanc JA summarized the findings of the Tax Court as follows:
a) The appellants' poker activities were, for them, much more than mere entertainment or a recreational activity;
b) The appellants played poker to earn a living, making them professional poker players;
c) Their poker activities represented their sole source of income (or the main source of income, in the case of Mr. D’Auteuil);
d) The appellants devoted almost all of their time to it, apart from sleeping, eating, and partying;
e) Based on the earnings generated from poker, they had the ability to achieve profits on a consistent and regular annual basis, even though the outcomes of the games could not be predictably controlled;
f) At this level of earnings over such a long period, they could reasonably expect to make a living by playing poker;
g) Despite their unconventional lifestyle, they exhibited the behavior of "serious businessmen": they played to win; they had strategies that they adapted according to table levels and the strength of their opponents; they used software that allowed them to gather information on their opponents' playing trends, track their earnings on gaming sites, and analyze their personal statistics;
h) They adopted objective standards for risk management, risk minimization, and income maximization; and
i) They used their expertise and skills to make a living from poker, a game of chance in which skill plays a significant role.
LeBlanc JA did not find any reversible error in these findings or the Tax Court’s conclusion that their earnings were income from a business.
Neal Armstrong. Summaries of Fournier-Giguère v. Canada, 2025 CAF 112 under s. 40(2)(f) and s. 3(a) – business.
CRA indicates that a municipal bylaw requiring division of an apartment building into condo rental units could preclude access to the purpose-built rental housing (PBRH) rebate
The company acquired an existing single-family house in order to demolish it and construct two identical buildings, each containing four residential units for long-term rental use. It was unclear whether the municipal authority's bylaws required each unit to be strata-titled or whether it was only each of the two buildings that was required to be strata-titled.
Regarding the first alternative, CRA noted that a "multiple unit residential complex" (MURC) did not include a condominium complex, whose definition relevantly referred to a residential complex that contained more than one residential condominium unit. Accordingly, there would be no eligibility for the PBRH rebate.
Under the second alternative, each building could qualify as a MURC, so that the PBRH rebate would be available if the other requirements were satisfied.
Neal Armstrong. Summary of 13 August 2024 GST/HST Interpretation 247663 under Real Property (GST/HST) Regulations, s. 4(2).