News of Note
The Joint Committee recommends clarification that there be no adverse consequences to ignoring the CGIR proposals when filing your 2024 returns
Email this ContentWhile the proposals to generally increase the capital gains inclusion rate (the “Capital Gains Proposals”) were not tabled in Parliament in the form of a bill before Parliament was prorogued on January 6, 2025 and there is substantial possibility that they will never be enacted, Finance and CRA have confirmed that the ITA will be administered as though they were enacted.
This uncertainty as to enactment is unlikely to be resolved prior to the time at which many taxpayers will be required to pay tax and file for their 2024 taxation years. They will have the unattractive choices of: paying tax (and filing their returns) on the basis of existing law, and filing an amendment with additional tax payable in the event the Capital Gains Proposals are enacted with retroactive effect; or paying and filing on the basis of the proposals, and then filing an amendment (or objecting to their own filing) - and applying for a refund if the proposals are withdrawn.
The Joint Committee recommends that: the Government announce that the Capital Gains Proposals, if enacted, will only be applicable to gains realized after the relevant bill is introduced in Parliament; or (failing that) the CRA provide administrative relief by waiving arrears interest and confirming (for greater certainty) that penalties are not applicable to taxpayers paying tax and filing on the basis of existing legislation– until at least the date of the introduction of the relevant bill in Parliament.
Neal Armstrong. Summary of Joint Committee, Federal Budget 2024 – Capital Gains Inclusion Rate, 22 January 2025 Joint Committee submission under s. 38(a).
CRA finds that there is no disposition where crypto is deposited with or staked through a platform that holds the crypto in trust
A Canadian-resident taxpayer deposits crypto-assets held on capital account with a custodial centralized crypto-asset trading platform (the “Platform”) that is compliant with the requirements of the Canadian Securities Administrators (CSA) including that crypto-assets deposited with a Platform are held separately from the Platform’s own assets and in trust for each respective investor. The taxpayer may also “stake” crypto-assets through the platform, i.e., validating transactions in respect of a crypto-asset and adding them to a publicly distributed ledger through proof-of-stake blockchain protocols.
In finding that neither such deposits nor staking entailed a disposition, CRA stated:
[I]t is our understanding that, as a crypto-asset trading platform that is compliant with the CSA’s requirements, the Platform does not acquire beneficial ownership of any of the Deposited Crypto or Staked Crypto. Instead, users retain beneficial ownership of the Deposited Crypto and Staked Crypto at all relevant times.
Neal Armstrong. Summaries of 17 January 2025 Internal T.I. 2024-1031821I7 under s. 248(1) – disposition and s. 9 – timing.
Income Tax Severed Letters 22 January 2025
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA releases a new Memorandum on the IPP provincial place-of-supply rules
CRA has published a GST/HST Memorandum (supplanting draft B-103) on the rules (other than some specialized rules) governing the determination of the province of supply of intangible personal property.
Various of these rules turn in significant part on identifying the most relevant address of the recipient received by the supplier in the ordinary course of its business. CRA indicates that it generally regards the contracting address (i.e., the address of the recipient from which it hired the supplier) to have primacy over other addresses (such as a billing address, or the address of the office with the most operating contact), assuming that the contracting address is in Canada.
CRA provides 33 examples illustrating how it sees the different rules operating. For example, it provides some examples of where the supply will be deemed to occur at the highest provincial rate:
Example 10
- An Ontario company licenses, to a Quebec company, copyright that can only be used in Ontario and Nova Scotia and, in the ordinary course of business, obtains a Quebec address of the recipient. Since that address in not in a participating province (see Reg. 6(2)(b)(ii)) nor in a province in which the copyright may be used (see Reg. 6(2)(b)(iii)), HST is imposed under Reg. 6(2)(c) at the Nova Scotia rate, i.e., the highest rate for the participating provinces in which the copyright may be used.
Example 33
- A registered supplier with an Ontario business address, which supplies monthly subscriptions to its digitized website content without restrictions on where it may be used, receives in the ordinary course the Texas home address of a non-resident regular GST/HST registrant. Since in the ordinary course of business, the supplier has not obtained a Canadian address of the non-resident, and the content may be used anywhere in Canada, the province of supply under Reg. 11 is whichever of Newfoundland, New Brunswick, PEI and (subject to the upcoming rate reduction) Nova Scotia that is closest in proximity to the supplier’s business address.
Neal Armstrong. Summaries of GST/HST Memorandum 3-3-5 “Place of Supply in a Province – General Rules for Intangible Personal Property” January 2025 under New Harmonized Value-Added Tax System Regulations, s. 2 – Canadian rights, s. 6(1), s. 6(2)(a), s. 6(2)(b)(i)(A), s. 6(2)(b)(i)(B), s. 6(2)(b)(i)(C), s. 6(2)(c), s. 8(b)(i)(A), s. 8(b)(i)(B) and s. 11.
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
The 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).