News of Note
A proposed acquisition of InterRent REIT entails a step-up of depreciable assets and in-kind distribution of recapture representing more than 20% of the cash purchase price
Email this ContentIt 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.
CRA will not impose a late-filing penalty when an amended GST return is filed
Where a tax return was filed before the filing deadline and the registrant then requests an amendment to the return or files an amended return, CRA will not impose a late filing penalty given that “[a]ny requested adjustments/changes are requests for a re-assessment”.
Neal Armstrong. Summary of 2024 TEI Canadian Commodity Tax Committee Liaison Questions for CRA and Responses, Q.10 under ETA s. 280.1.
We have translated 6 more CRA interpretations
We have translated a CRA interpretation released last week and a further 6 CRA interpretations released in March of 2000. Their descriptors and links appear below.
These are additions to our set of 3,303 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 25 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
[corrected link] V.O.S. Selections – a US Court of Appeal finds that the reciprocal and fentanyl-trafficking tariffs are unlawful
Because it is of general interest, we have provided a link to the V.O.S. Selections decision of the US Court of Appeals for the Federal Circuit.
The majority found that the International Emergency Economic Powers Act (IEEPA) did not authorize the imposition by executive order of the fentanyl-trafficking tariffs or the reciprocal tariffs. The IEEPA authorized the president to take any of a specified long list of actions, including “to regulate … importation”, in response to a declared national emergency arising from “an unusual and extraordinary threat … to the national security, foreign policy, or economy of the United States.”
The majority found that where Congress has provided the President with the power to impose tariffs, it has used “clear and precise terms to delegate [that] tariff power”. Here, “[t]he statute neither mentions tariffs (or any of its synonyms) nor has procedural safeguards that contain clear limits on the President's power to impose tariffs.”
Furthermore, under the “major questions” doctrine, which is engaged in “'cases in which the history and breadth of the [asserted Presidential] authority’ … entails vast ‘economic and political significance’,” the government is required to point to clear congressional authorization for that asserted authority. Here, “[t]he invocation of IEEPA to impose tariffs on nearly every country in the world is undoubtedly a significant departure from … previous invocations” of presidential power regarding tariffs; and the clear congressional authorization therefor was lacking (and similarly regarding the fentanyl tariffs).
Accordingly, the imposition of both sets of tariffs was declared to be unlawful. However, the case was remanded to the court below to determine whether its issuance of an injunction applying to all impositions of those tariffs, rather merely making a declaration of unlawfulness, accorded with the findings of the Supreme Court in CASA, 145 S. Ct. 2540 (2025), as to the limited circumstances in which a universal injunction is warranted.
The majority of seven of the eleven judges included three judges who concurred in the majority judgment, briefly summarized above, but who wrote additional reasons indicating that the IEEPA did not authorize any tariff.
The minority of four judges indicated that “considerable deference” was required to be accorded to a Presidential declaration of a national emergency (a proposition which was not disputed by the majority), and further indicated that it was not convinced that such deference should not be accorded in this instance. It also stated that “[w]e know of no persuasive basis for thinking that Congress wanted to deny the President use of the tariffing tool, a common regulatory tool, to address the threats covered by IEEPA.”
Regarding the “major questions” doctrine, the minority indicated that this doctrine has not been applied in the national security or foreign policy context in which “'the usual understanding is that Congress intends to give the President substantial authority and flexibility to protect America and the American people’.” Thus, there was “simply no ‘common sense’ expectation in the present context, involving emergencies touching foreign affairs, that Congress was unlikely to be granting the authority at issue.” The minority therefore did “not see IEEPA as anything but an eyes-open congressional choice to confer on the President ‘broad authority’ to choose tools to restrict importation when the IEEPA” standards were met.
Given the number of judges in the minority, the chances of the President ultimately prevailing in the US Supreme Court might be considered to be more than trivial.
V.O.S. Selections, Inc. v. Trump, Case 25-1812 (U.S.C.A. (Fed. Circuit), August 29, 2025)
CRA finds that a Canadian employer had no source deductions obligations when a resident employee emigrated to another taxing country and performed his duties remotely
An individual, who had been employed by a Canadian-resident corporation, ceased to be a resident of Canada but continued to provide services remotely to his Canadian employer, for which he received a salary that was subject to income tax in the other country. Did Reg. 104(2) eliminate the Canadian employer’s source deduction obligations?
CRA indicated that the Reg. 104(2)(a) exception to Reg. 104(2) did not apply since the remuneration was attributable to his duties of employment performed outside Canada and such remuneration was subject to an income or profits tax imposed by a non-Canadian government. The Reg. 104(2)(b) exclusion also did not apply, given that the remuneration was not reasonably attributable to duties of his employment performed in Canada.
Accordingly, there would be no obligation to withhold by virtue of Reg. 104(2).
Neal Armstrong. Summary of 19 March 2025 External T.I. 2024-1043781E5 under Reg 104(2).
CRA confirms that an inter vivos trust that is wound up in the year nonetheless has a December 31 taxation year end
The Sched. 15 beneficial-ownership reporting required under Reg. 204.2(1) is applicable to trust taxation years ending on or after December 31, 2023. What if an inter vivos trust (or other trust described in s. 249.1(1)(c)) was fully wound up in 2023 before December 31?
CRA indicated that there is no provision that would cause the trust’s taxation year to be a period other than the calendar year, so that it nonetheless would have a taxation year ending on December 31, 2023. Accordingly, it would be required to provide the Sched. 15 information with its 2023 T3 return.
Neal Armstrong. Summary of 16 May 2024 External T.I. 2023-0986981E5 under Reg. 204.2(1).
CRA indicates that CEWS is excluded from gross revenue and wages for Reg. 402(3) purposes
CRA indicated that the Canadian emergency wage subsidy ("CEWS") should be excluded in computing gross revenue for the purposes of the interprovincial income allocation formula in Reg. 402(3) in accordance with CRA’s “longstanding position … that financial assistance received by a corporation from a government in respect of expenditures incurred or to be incurred by the taxpayer is normally excluded in determining gross revenue” for Reg. 402(3) purposes.
Furthermore, “although the CEWS is intended to offset a portion of salaries and wages, it does not in itself constitute salary or wage paid to an employee,” e.g., for the purposes of that formula.
Neal Armstrong. Summary of 4 July 2025 Internal T.I. 2025-1054791I7 F under Reg. 402(3).
Income Tax Severed Letters 27 August 2025
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA now considers that the FMV of a share for s. 55(2.1)(c) purposes does not include a declared dividend, which it views as a separate property
In 2016-0652981C6, which concerned three corporations each holding an equal number of discretionary common shares in a corporation, a discretionary dividend was paid solely to one of the three corporations in an amount in excess of the global accumulated safe income of the corporation, with the result that the entire amount of such safe income was allocated to the recipient of that dividend. This was on the basis that the declaration of the dividend increased the FMV of those particular shares and thus the accrued gain immediately before the time of payment of the dividend for purposes of the application of s. 55(2.1)(c).
However, CRA’s 2023 Safe Income Paper (at 17.9) instead now states that the FMV of a share must be determined prior to the declaration of the dividend for purposes of computing the hypothetical capital gain under s. 55(2.1)(c). This revised CRA reasoning is based primarily on the assumption that a declared dividend constitutes a separate property from the underlying common share, so that the value of the dividend after its declaration and immediately before its payment would not contribute to the accrued capital gain on the share.
This disregarding of the contribution of a dividend to value would seem to make the safe income exception inapplicable to many dividends paid on preferred shares, for example, on a freeze preferred shares with a non-cumulative dividend entitlement. With no increase in the FMV of the share considered to result from the declared dividend, it is uncertain whether the safe income exception would apply given that such safe income would not contribute to the hypothetical capital gain on the share.
Neal Armstrong. Summary of Jordan Fournier and Jean-Benoit Thivierge, “Allocation of Safe Income: Change In the Application of the Global Approach,” Tax for the Owner-Manager, Vol. 25, 3 July 2025, p. 14 under s. 55(2,1)(c).
Reporting platform operators may be required to infer the consideration paid to platform vendors from the dollar value of their orders
The operator of a proprietary digital platform, who was also an equipment manufacturer, allowed independent vendors to list their goods for sale on the platform to select customers. Orders were initiated via the platform by such customers, but once confirmed, the platform was no longer involved in the transaction, which was completed by the vendors in the same manner as sales made outside of the platform. The operator had access to order data captured at the time of transaction initiation, such as the value of the orders, but had no visibility into subsequent developments, such as fulfillment and final sale price.
Regarding what inferences the reporting platform operator could make in relation to its reporting obligations under s. 292, CRA indicated that, generally, if a particular seller was determined by a reporting platform operator to be a reportable seller, CRA expected the operator to report the information set out in s. 292, including the total consideration paid or credited during each quarter of the reportable period. CRA indicated that if the reporting platform operator knew the total value of orders placed with the seller, this could make the seller's consideration "reasonably knowable" to the reporting platform operator as per the definition of consideration.
Neal Armstrong. Summaries of 30 May 2025 External T.I. 2025-1050201E5 under s. 288(1), s. 282(1) – consideration, active seller.