Transitional Provisions and Policies


Toronto-Dominion Bank v. Canada, 2011 DTC 5125 [at 6061], 2011 FCA 221, [2011] 6 CTC 19

Under the former s. 55(1) of the Act, the taxpayer might have been found to have artificially or unduly created a loss from the disposition of shares, so that the loss would have been denied. Subsection 55(1) had been repealed when the disposition occurred, but there was a transitional provision (s. 33(4) of the amending Act) which provided that s. 55(1) would still apply for a limited time to a "series of transactions" commencing before the repeal. In finding that it was appropriate for this phrase to be given its ordinary restricted meaning, Evans JA stated (at para 47):

[A] statutory provision does not normally apply to events after its repeal. ... To continue to apply subsection 55(1) to a post-repeal disposition that was part of a series of sequential but not pre-ordained transactions [(and hence not conforming to the ordinary jurisprudential definition that a "series of transactions" be pre-ordained)] would unduly extend the life of a repealed statutory provision and defeat taxpayer expectations.

Holbrook v. Canada, 2007 DTC 5336, 2007 FCA 145

An interim child support order made requiring the payment to the taxpayer of $1,000 per month was followed by a separation agreement requiring the same amount of child support to be paid to the taxpayer commencing May 1, 1998. Sharlow J.A. concluded that because the interim order ceased to have effect once the separation agreement came into force, the child support payments payable to the taxpayer on and after May 1, 1998 were paid pursuant to a separation agreement with a commencement day that was made after April 1997, with the result that such payments were exempt under the new child support regime.

General Motors of Canada Ltd. v. Canada, 2003 DTC 5254, 2003 FCA 126

Although the taxpayer had an obligation, which existed prior to June 18, 1987, to undertake the assembly of two models of cars for the 1988 model year that required a significant investment in new machinery, it did not enter into specific agreements with suppliers to acquire special tooling until after June 18, 1987, with the result that such tooling did not qualify as having been acquired "pursuant to an obligation in writing entered into by the taxpayer before June 18, 1987".

Bow River Pipe Lines Ltd. v. Canada, 97 DTC 5385 (FCA)

After indicating (at p. 5398) that "the Tax Court judge did not err in concluding that the words 'agreement in writing' did not require that the agreement create 'contractual rights and obligations'", Desjardins J.A. found that the taxpayer was not grandfathered with respect to an amendment to s. 98(5) because the agreement in question did not bind it to acquire a partnership interest.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Illegality assignment of partnership interest invalid where assignee not admitted 195
Tax Topics - Income Tax Act - Section 96 mere assignee of partnership interest was not a partner 195

Montgomery v. MNR, 94 DTC 6367, [1994] 2 CTC 57 (FCTD), aff'd 95 DTC 5032 (FCA)

S.127(5) of S.C. 1993, c.24, which effectively provides that s. 220(3.1) "applies to the 1985 and subsequent taxation years" indicates that s. 220(3.1) only applies to penalties and interests arising from assessments for the 1985 and subsequent taxation years, rather than giving the Minister the discretion to cancel or waive any interest payable that arises in the 1985 and subsequent taxation years (including interest referable to tax returns for 1984 or previous taxation years). Pinard J. noted (pp. 6368-6369) that "there would have been no need to include 'taxation year' or 'subsequent taxation year', if the cutoff point were to be determined by reference to the accruing of interest and not the year for which a return was filed."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 220 - Subsection 220(3.1) 115

Kostiuk v. The Queen, 93 DTC 5511, [1993] 1 CTC 31 (FCTD)

Strayer J. found that there had been a "transfer" within the broad meaning of s. 160(1) of a beneficial interest in the land to the taxpayer by her father prior to the introduction of the expanded version of s. 160(1) effective November 12, 1981 given that prior to that date her father had entered into a separation agreement with his wife binding him to transfer the land to his daughter. It was irrelevant that a land transfer document signed by him prior to November 12, 1981 turned out to be unregistrable and had to be replaced later.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 160 - Subsection 160(1) 93

The Queen v. Trade Investments Shopping Centre Ltd., 93 DTC 5486 (FCTD)

The transitional provision for the introduction of s. 13(21.1)(a) of the Act, which excluded from the application of that section dispositions "occurring pursuant to the terms of an agreement in writing entered into on or before [May 9, 1985]" was found to provide relief for a disposition of land by the taxpayer to a purchaser who exercised after 1985 a purchase option contained in a lease agreement dated August 31, 1961. An option was a unilateral contract and, therefore, an agreement. Although it was true that an agreement which had the effect of conferring a purchase option was separate from the agreement which occurs when the option is taken up, the transitional provision did not require that the purchase occur "by virtue of" the agreement, but only that it occur "pursuant to" the agreement, which latter phrase had a broad scope. In addition, because s. 13(21.1)(a) impacted only the seller, the transitional provision should be interpreted from the standpoint of the seller, and from that standpoint the fact that an option agreement did not place any obligation on the potential purchaser was of no significance.

See Also

Hunter v. The Queen, 2001 DTC 907 (TCC) (Informal Procedure)

S.252(4), which deemed common-law spouses to be spouses, stated that it applied after 1992. The taxpayer had separated from his common-law spouse in February 1992 but commenced paying her support pursuant to a written agreement made in 1994. Bowman A.C.J. found that the preferable interpretation was that s. 252(4) prospectively attributed to an event that existed prior to its effective date (the common-law relationship that existed up to February 1992) a legal effect on events that occurred after its effective date (the making of post-1994 support payments under the 1994 agreement).

Ainsworth Lumber Co. Ltd. v. The Queen, 2001 DTC 496 (TCC)

A project to utilize a timber resource to produce oriented strand board in Grande Prairie was found to be "substantially advanced" before February 22, 1994 given that before that date the taxpayer "had done an immense amount of work ... to put itself in a highly informed and highly equipped position to prepare and submit [after that date] what proved to be a winning bid" (p. 510). Bell T.C.J. noted (at p. 510) that the taxpayer "had clearly made much more than 'just nominal or insignificant progress' in the pursuit of its project" and that "the word 'substantially' does not have to be quantified by a percentage."

Words and Phrases
substantially advanced

Pogson v. Lowe, [1984] 1 WLR 182 (HL)

It was held that an arrangement had not been made in writing to dispose of land when the notes in writing did not evidence the essential terms of the arrangement (as opposed to evidencing that an arrangement of some sort had been made).

Administrative Policy

29 September 2022 External T.I. 2022-0949081E5 - CMETC -Qualified Engineer or Geoscientist

CRA will not reassess based on draft legislation if the original assessment was correct at law

In the context of the draft legislation regarding the enhanced credit respecting flow-through critical mineral mining expenditures, CRA quoted previous statements that:

It is the CRA’s longstanding practice to ask taxpayers to file on the basis of proposed legislation. This practice eases both the compliance burden on taxpayers and the administrative burden on the CRA. However, where proposed legislation results in an increase in benefits (for example, Canada child tax benefit) to the taxpayer, or if a significant rebate or refund is at stake, the CRA’s past practice has generally been to wait until the measure has been enacted. …

Generally speaking, the CRA will not reassess if the initial assessment was correct in law. As a result, a taxpayer’s request to amend their tax records to reflect proposed legislation will be denied. It is recommended that taxpayers file a waiver in respect of the normal reassessment period to protect their interests.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 127 - Subsection 127(9) - Flow-Through Critical Mineral Mining Expenditure CRA is reviewing whether it will permit critical mineral status to be certified after the related flow-through share agreement is made 182

2021 Ruling 2021-0880641R3 F - Changes to existing monetization arrangements

agreement novation likely would lose grandfathering

A monetization arrangement that was grandfathered from application of the synthetic disposition rules for deferring gain on the shareholding of a holding company (“Holdco A”) in a public company entailed a secured loan from a financial institution (“FI”) to Holdco A and a cash-settlement forward agreement between Holdco A and FI. A reference index was used in determining both the interest rate under the loan and the reference price under the Forward Agreement.

As a result of the discontinuance of the reference index, it will be replaced for such purposes by a similar index.

The synthetic disposition rules apply to agreements and arrangements entered into after March 20, 2013, and to earlier agreements or arrangements whose terms are extended after that date. CRA ruled that the index substitution would not result in the application of s. 80.6 (i.e., no loss of the deferral) - and also provided a tentative opinion “that there is a reasonable argument that Holdco A could lose the benefit of the transitional relief to the extent that the assignment of the Monetization Agreement would have the effect of novating it.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 80.6 - Subsection 80.6(1) substituting the index used in a monetization arrangement did not de-grandfather it from the synthetic disposition rules 153

7 October 2021 APFF Roundtable Q. 6, 2021-0900961C6 - APFF Q.6 - Minimum Tax Carryover and TOSI

CRA will honour incorrect AMT carryforward balances that arose due to an error in the CRA form

After acknowledging that an error in a CRA form had since 2013 led to taxpayers calculating erroneously large AMT carryforward balances, CRA indicated that it was grandparenting not only prior taxation years where an erroneously high carryforward amount was applied, but also unutilized carryforward balances that were erroneously calculated in 2020 and prior years’ returns and could still be erroneously claimed in future taxation years within the seven-year AMT carryforward period.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 120.2 - Subsection 120.2(3) - Paragraph 120.2(3)(b) CRA will not retroactively adjust returns that relied on a form error permitting TOSI to increase additional tax carryforwards 433

30 January 2015 External T.I. 2014-0521751E5 - overseas employment tax credit

"extension" of contract one day after it expired could result in a new contract

A resident individual contracted a "specified employer" prior to March 29, 2012 and, on January 1, 2013, one day after the contract expired, agreed with the employer to extend the original contract for another year. Would the extended contract be a contract "committed to in writing before March 29, 2012" for purposes of s. 122.3(1.01)? CRA stated:

[I]t appears that the extension of the original contract was agreed to one day after the original contract expired. Where the extension of a contract is agreed to on a date that occurs after the original contract has already expired, for purposes of the OETC, we would generally be of the view that the parties have entered into a new contract rather than merely extending the old contract unless the taxpayer can demonstrate otherwise under the governing private law.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 122.3 - Subsection 122.3(1.01) "extension" of contract one day after it expired could result in a new contract 136

Income Tax Technical News, No. 34, 27 April 2006 under "Draft Legislation".

7 January 2004 External T.I. 2003-0032501E5 F - Transitional Rules/Allègement transitoire

taxpayer could choose whether a disposition came out of a pool of grandfathered or non-grandfathered shares

An estate held 200 shares of a corporation (HoldcoB), of which 100 Class B shares had grandfathered status so as not to be subject to new rules under s. 112(3) et seq., and 100 shares did not have grandfathered status. HoldcoB then redeemed 100 of the 200 Class B shares. In finding that the estate could choose to treat such redemption as being of the grandfathered shares, CCRA stated:

[T]he CCRA's position on the disposition of identical shares is to adopt the order of disposition of the shares chosen by the taxpayer for the purposes of subsections 112(3) and 112(3.2).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3) CCRA adopts the order of disposition of shares chosen by the taxpayer in applying the grandfathering rules under ss. 112(3) and (3.2) 223

10 May 1994 External T.I. 9408765 - GRANDFATHERING NEGATIVE ACB

An amendment to an offering memorandum circulated prior to 22 February 1994 permitting an offering for an amount greater than the original maximum offering price and involving an increase in the maximum offering amount would result in the loss of transitional relief respecting the introduction of the 22 February 1994 Budget proposals on negative partnership adjusted cost base and convertible debt.

10 May 1994 External T.I. 9411385 - GRANDFATHERING NEGATIVE ACB

Opinion provided that partnership units would be eligible for "grandfathering" respecting the 22 February 1994 Budget proposals concerning negative partnership adjusted cost base and convertible debt.

24 June 1993 T.I. (Tax Window, No. 32, p. 22, ¶2626)

Where a deferred salary leave plan is amended to extend the deferral, or to provide for two leaves of absence, this would be considered to result in a new agreement.

28 August 1992 T.I. (Tax Window, No. 23, p. 17, ¶2150)

Where a taxpayer sells property and subsequently reacquires it as a result of a foreclosure, the taxpayer will be considered to have acquired the property on the date of reacquisition for purposes of subparagraph (a)(vii) of the definition of qualified farm property in s. 110.6(1) (which applies only to land acquired before June 18, 1987).