News of Note
Legault – Court of Quebec finds that a Canadian diplomat who had been living mostly abroad for many years was factually resident in Quebec
Email this ContentThe taxpayer, who had spent her childhood in Quebec, then spent most of her time abroad, including being employed by the Department of Foreign Affairs in various diplomatic functions. From 2016 to 2020, she served as the Canadian ambassador to Barbados and then, after several days in Quebec, in January 2021 took up her position as the Canadian ambassador to Mali.
She was reassessed by the ARQ for her 2018 and 2019 taxation years on the basis that she was a resident of Quebec. For those years, she had filed federal income tax returns (also paying the additional federal tax in lieu of being resident in a province), but not Quebec returns.
In finding that the taxpayer was a resident of Quebec for the two taxation years at issue, Chalifour JCQ first stated (at para. 60, TaxInterpretations translation) that “leaving Quebec for work reasons does not generally constitute a breaking of residence ties with Quebec.” Throughout the period, the taxpayer had been the owner of a residence in Quebec and, in September 2019, her daughter, who had been studying in Barbados while staying with her mother, took up her studies in Quebec. Furthermore, the taxpayer had a Quebec driver’s licence, Quebec-registered vehicle, Quebec health card, and Quebec credit cards and bank account. It was not decisive that her life partner resided in France rather than Quebec.
Before concluding that the taxpayer was factually resident in Quebec during the 2018 and 2019 years, Chalifour JCQ referred to s. 8(1)(c) of the Taxation Act (Quebec) which (similar to ITA s. 250(1)(c)) deemed an individual to be resident in Quebec throughout a taxation year if, at any time in the year, the individual “was an ambassador … of Canada … and was resident in Québec immediately prior to … employment or appointment by Canada.” Chalifour JCQ stated (at para. 49) that “for section 8 to apply, the taxpayer must, in fact, no longer reside in Quebec.” As she also concluded that the taxpayer was factually resident in Quebec, s. 8(1)(c) did not apply.
It would have been more accurate to state that the taxpayer would have been deemed by s. 8(1)(c) to be resident in Quebec if she had been factually resident in Quebec immediately before her appointment, years before, to the federal government.
Neal Armstrong. Summaries of Legault v. Agence du revenu du Québec, 2026 QCCQ 1320 under s. 2(1) and s. 250(1)(c).
Glencore v. FTI – BC Court of Appeal finds that a recipient could not set off HST owing by it to a supplier (who never remitted that HST) against a debt owing by the supplier to it
Glencore relied on a set-off clause in the long-term metals supply contract between it and an arm’s length mining company (“TNB”) to pay amounts (including HST) owed by Glencore to TNB for such TNB metals supplies by way of set-off against most of the amount owed by TNB to Glencore for “Replacement Costs” incurred by Glencore due to TNB’s failure to make earlier deliveries under the contract. After TNB has gone into CCAA proceedings, CRA assessed TNB for its failure to remit the HST which Glencore had purported to pay to TNB by way of set-off.
Fisher JA, after referring to the requirement of TNB to collect HST as agent for CRA under ETA s. 221(1) and to remit it to CRA under s. 222(1), indicated that he saw no error in the judge's description of the HST as a debt owed by the recipient (Glencore) to CRA, which the supplier collected on behalf of CRA as agent. Furthermore, s. 224 did not deem Glencore to owe the HST to TNB in its personal capacity because TNB had not paid such tax to CRA.
Because TNB owed the Replacement Costs to Glencore in its personal capacity, whereas Glencore (given the non-application of s. 224) continued to owe the HST at issue to TNB in TNB's capacity of trustee, there was no mutuality necessary for legal or equitable set-off to occur.
Since Glencore had not paid the HST, the judge had appropriately exercised her discretion under s. 11 of the CCAA to order Glencore to pay the HST to TNB as CRA's agent. It did not matter that, pursuant to s. 222(1.1), TNB was no longer deemed to hold any HST collected in trust for CRA after the commencement of the CCAA proceedings – so that this order allowed the receiver to receive such funds and distribute them among the creditors in accordance with the CCAA.
Neal Armstrong. Summaries of Glencore Canada Corporation v. FTI Consulting Canada Inc., 2026 BCCA 167 under ETA s. 221(1) and s. 224.
Heydary - Tax Court of Canada finds that a failed law firm in trusteeship could not claim ex-client receivables over 3 years old as bad
The appellant, a law firm, went into Law Society of Ontario (LSO) trusteeship when it was discovered that its founder had absconded in November 2013 with trust funds of over $3 million. Over half of the client's accounts receivable that had been outstanding in November 2013 were claimed in the appellant's June 2017 return as bad debts.
In confirming the Minister's denial of the s. 231 HST credit, Russell J found that none of the three main conditions for s. 231 to apply had been met.
First, regarding the requirement that the receivable “had become a bad debt,” Russell J stated that “a debt becomes ‘bad’ when, despite reasonable steps having been taken to collect, the debt remains uncollected.” He noted that the evidence of collection for the 50 receivables included in the claim involved only four emails seeking payments and two statements of claim. He stated (at para. 24) that the receivables did “not become bad debts because the appellant is unwilling to properly pursue them with phone calls, letters and court proceedings if necessary.”
Second, regarding the requirement that the receivables have been written off in the supplier’s books of account, he found (at para. 28) that there was no evidence of such a write-off, nor of the appellant having approached the LSO to give it temporary access to the accounts in order to make the required write-off entry.
Third, the appellant had not remitted any of the HST included in the receivables by June 2013. On this point, Russell J stated (at para. 38) that the “law is clear that the paying of net tax subsequent to the time at which the deduction claim is filed does not satisfy the requirements specified in subsection 231(1.1)”.
This decision suggests that the s. 231 requirements are a trap for the unwary, e.g., where a law firm for client relationship or other good business reasons chooses to write off a client receivable rather than pursue its collection and does not timely issue a credit note complying with the s. 232 rules.
Neal Armstrong. Summary of Heydary Green Professional Corporation v. The King, 2026 TCC 69 under ETA s. 231(1).
CRA finds that an electronic certificate to unallocated bullion represents beneficial ownership of the indicated quantity of bullion
The resident taxpayer, like other clients of a corporation resident in Canada, purchased holdings ("Holdings") evidenced by electronic records provided online to the clients. These Holdings represented a quantity of precious metals held by or on behalf of the client and stored in a vault situated outside Canada.
The taxpayer had the option to choose between Holdings in respect of registered bars or non-registered bars. In the case of non-registered metals, the Holding was stated to represent the taxpayer's proportionate, undivided interest in the weight of the metal.
After determining that the registered Holdings constituted specified foreign property under para. (b) of the specified foreign property definition as tangible property situated outside Canada, CRA further concluded that the Holdings in respect of non-registered metals constituted specified foreign property under para. (h) of that definition as an interest in tangible property situated outside Canada. CRA stated:
Where the Holding reflects non-registered metal, the Taxpayer holds a proportionate undivided interest in the weight of the metal situated abroad … [and] also bears the core attributes of beneficial ownership (control over sale/delivery, exposure to price risk, entitlement to proceeds).
… [T]he Holding is evidence of the Taxpayer’s ownership interest in the non-registered metal.
In that regard, it can be said that the Taxpayer’s proportionate undivided interest in the weight of non-registered metal that is situated in a vault outside Canada is the Taxpayer’s interest in tangible property situated outside Canada, and consequently may be considered an interest in a property that is specified foreign property.
This finding (albeit based on representations made by the taxpayer) may contradict the statement in 7-3237 that the Department had:
previously determined that a silver or gold certificate is an obligation stating the issuer's liability to deliver upon demand the bullion in exchange for the certificate. Accordingly, the holder possesses merely personal rights, (rights in personam), enforceable against the issuer, rather than real rights (rights in rem) in the commodity itself.
See also Goldcorp.
Neal Armstrong. Summary of 23 September 2025 External T.I. 2025-1064831E5 under s. 233.3(1) – specified foreign property – para. (b), para. (h).
CRA finds that the fresh-start rule re a change of an active to an investment business is inapplicable where there also is a “fundamental change” to that business
A wholly-owned foreign affiliate (FA 1) of the taxpayer had carried on a business of distributing a product that had been manufactured by another foreign affiliate of the taxpayer (Producer FA). FA 1 held the trademark and other intellectual property (IP) relating to the product, and provided a royalty-free licence to Producer FA (and another FA providing distribution services) for their use of such IP in connection with the product.
However, on the “Change-in-Business Date,” a new, wholly-owned foreign affiliate (FA 2) of the taxpayer became the distributor of the product and began making royalty payments to FA 1 for its use of the IP. As these royalties were the only income stream for FA 1 after that date, FA 1 now carried on an investment business.
Whether the fresh start rules in s. 95(2)(k.1) applied, so that the taxpayer could rely on Reg. 5907(2.9) and those rules to increase the exempt surplus of FA 1 on account of a gain realized on a deemed disposition of the IP for its FMV, turned on whether such investment business of FA 1 was to be regarded as the business that it had carried on (as an active business) prior to the Change-in-Business Date.
In rejecting this proposition, the Directorate stated:
[W]hile retaining the elements of a business, they can be so materially altered that in effect the changes give rise to a new type or new field of business. … [W]hile after the Change-in-Business Date FA 1 continued to hold the Original IP as its main asset, it no longer used it in a distribution business, but rather it used it in its new licensing business instead.
… [I]t would be reasonable to conclude that … FA 1 had a fundamental change in its business - it ceased carrying on its distribution business and entered into a new field of business, which is not of the same kind and type as, and not a continuation of, the business it carried on before the Change-in-Business Date. This change to the business operations of FA 1 … would go beyond the change in nature of a business from active to passive contemplated in paragraph 95(2)(k).
The effect of this interpretation is to render it highly uncertain when s. 95(2)(k.1) applies.
Neal Armstrong. Summary of 10 February 2023 Internal T.I. 2019-0816681I7 under s. 95(2)(k).
Income Tax Severed Letters 22 April 2026
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that limitations on withdrawals from a privately-funded RDSP may potentially be overcome through requesting a lump-sum withdrawal
Regarding how withdrawal limitations under the s. 146.4 rules might apply where the beneficiary of an RDSP had Down syndrome and a life expectancy of 60 years, CRA indicated:
- Lifetime disability assistance payments (LDAPs), as defined in s. 146.4(1), are required by s. 146.4(4)(k) to begin no later than the end of the taxation year in which the beneficiary turns 60. Furthermore, the effect of the formula in s. 146.4(4)(l) is to ensure that the RDSP's property is not exhausted before the beneficiary reaches the age of 80 (and that it will be mostly, but not completely, depleted via LDAPs at that age).
- Where the plan permitted disability assistance payments (DAPs) that were not LDAPs (“non-LDAPs”), such payments could be requested for various reasons, including where the beneficiary was in financial distress.
- Additionally, the holder of the RDSP could request that the issuer terminate the RDSP if the only property in the plan was the assistance holdback amount (AHA); and conversely, if the FMV of the property held in the RDSP exceeded the AHA, the RDSP could not be terminated until this excess was fully eliminated.
- However, this excess amount could be withdrawn through the payment of a non-LDAP, assuming the plan allowed for such payments (and if the plan did not permit non-LDAPs, the holder could consider transferring the property - on a tax-deferred basis, if s.146.4(8) was satisfied - to a financial institution offering terms allowing for non-LDAPs.)
- Additional considerations applied under an RDSP that was primarily government-assisted.
Neal Armstrong. Summaries of 2 December 2024 External T.I. 2023-0973581E5 under s. 146.4(4)(l) and s. 146.4(4)(n).
We have translated 5 more CRA interpretations
We have translated a further 5 CRA interpretations released in June of 1999. Their descriptors and links appear below.
These are additions to our set of 3,535 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 26 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Burlington Loan Management – English Court of Appeal finds that purchasing an interest claim on the basis of treaty exemption did not indicate a purpose of “taking advantage” of that exemption
BLM, a substantial Irish-resident investment company, purchased a proved claim to post-administration interest in the administration of Lehman Brothers International (Europe) ("LBIE" – a UK resident) from an unrelated Caymans company (“SICL”) for a cash purchase price which exceeded what SICL would have received in light of UK withholding tax of 20% - but generated an 8% profit to itself because of the withholding tax exemption under the UK-Ireland treaty. Art. 12(1) provided:
Interest derived and beneficially owned by a resident of a Contracting State shall be taxable only in that State.
HMRC denied BLM’s refund claim on the basis of Art. 12(5) of that Treaty, which excluded the application of the interest exemption in Art. 12 “if it was the main purpose or one of the main purposes of any person concerned with the … assignment … to take advantage of … Article [12].
Snowden LJ found that although BLM was relying on Art. 12(1), the Art. 12(5) exclusion nonetheless was not engaged. He stated:
[T]o "take advantage" of a provision such as Article 12(1), within the meaning of an anti-abuse provision such as Article 12(5), cannot simply be synonymous with to "obtain the benefit" of that provision. That would have the result that the treaty would be self-defeating. …"[T]o take advantage of" the article in question must mean obtaining the benefit of the article in a way that is contrary to the object and purpose of the treaty. …
[G]enerally, one of the principal objectives of the UK-Ireland Treaty was to promote the movement of capital between the UK and Ireland by the elimination of double taxation. In the current context, the movement of capital in question was the payment of interest on the SAAD Claim from a source in the UK. … [E]nabling BLM, as a resident of Ireland, to bid a higher price to acquire the SAAD Claim on the assumption that it would only be taxed on those monies in Ireland and not also in the UK was precisely in line with the objects and purposes of the UK-Ireland Treaty.
Snowden LJ went on to indicate that “Article 12(5) would plainly have been engaged” if, instead, SICL had, for instance, incorporated a wholly-owned Irish subsidiary and had contributed the SAAD Claim to it so as to allow the subsidiary to claim the Art. 12(1) exemption.
Neal Armstrong. Summary of Revenue and Customs v Burlington Loan Management DAC [2026] EWCA Civ 461 under Treaties – Income Tax Conventions – Art. 11, Art. 3.
Global Real Assets Trust is proposing to issue preferred units in order to reduce or eliminate gating for its current units
Although GRAT (which has over 80% of its NAV invested in illiquid private real estate and infrastructure assets held outside Canada) has suspended cash redemption of its various series of units (the “Units”), it is proposing to issue preferred units (the “Preferred Units”), with the proceeds used in part to implement a “Special Redemption Transaction” under which it would honour redemption requests for Units at a redemption price equal to 100% of the applicable series NAV, subject to specified conditions.
The Preferred Units themselves will have a commercially unattractive quarterly redemption right.
GRAT’s income and net taxable gains for ITA purposes will generally be allocated to the holders of Units and Preferred Units in the same proportion as the distributions received by them. Counsel considers that, although there is risk on the point, s. 104(7.1) of the ITA should not apply.
Neal Armstrong. Summary of Preliminary prospectus of Global Real Assets Trust (“GRAT” or the “Trust”) for issuance of 6.85% cumulative redeemable Series 1 Preferred Units (the “Preferred Units”) under Offerings – REIT, Trust and LP Offerings – Preferred Unit Offerings - MFTs.
Neal H. Armstrong editor and contributor