News of Note
Bitton – Court of Quebec computes the taxable benefit from personal use of a corporate jet at US$6500 per hour
Email this ContentThe taxpayer used a mid-sized corporate jet owned by one of the subsidiaries in the group predominantly in relation to business travel. However, the aircraft was also used for the personal use of the taxpayer and his immediate family. It was agreed that the personal use hours of the aircraft for 2013 and 2014 were 19.53 and 39.39 hours, respectively, representing 20.78% and 23.46%, respectively, of the total hours of use.
In determining the quantum of the benefit on which the taxpayer was taxable under the Quebec equivalent of ITA s. 246(1)), Bourgeois JCQ rejected the taxpayer’s reliance on the CRA Communiqué AD-18-01 (also rejected by the ARQ) which, in its most favorable aspect, indicated that where an employee took a flight on the aircraft for business reasons, but there was a personal purpose for others taking the flight, the value of the taxable benefit for such personal use was based on the highest-priced ticket available on the marketplace for an equivalent commercial flight. He noted evidence that there was considerably more convenience, time efficiency and flexibility in using a private jet than in taking a commercial flight.
However, he also rejected the position of the ARQ that the benefits should be computed by taking into account, in addition to the aircraft operating costs, the CCA deductions taken on the aircraft.
Bourgeois JCQ concluded, based on the evidence presented, that the fair market value cost for chartering a mid-sized corporate jet was US$6,500 per hour. He computed the annual benefits by multiplying the annual hours of personal use by this figure and then converting that amount to Canadian dollars.
Neal Armstrong. Summary of Bitton v. Agence du revenu du Québec, 2026 QCCQ 312 under s. 246(1).
CRA notes the 1st-time s. 233.7 exemption from filing a T1135 can be used only once
CRA confirmed that interest earned by a Canadian resident on various types of accounts that were tax exempt or tax advantaged under French tax law would be included in computing the resident's income under the s. 12 rules, given the absence of any exemption under the Canada-France Income Tax Convention. The referenced accounts were the "livret jeune" (youth savings accounts), "livret bleu" (blue savings accounts), "livret de développement durable et solidaire" (sustainable and solidarity-based savings accounts) ("LDDS"), "compte épargne logement" ( home savings accounts) ("CEL"), and "compte capital expansion" (capital expansion accounts).
Furthermore, assuming the $100,000 cost amount threshold was exceeded, the taxpayer would be required to annually report such accounts in a T1135 form - except that, pursuant to s. 233.7, if the individual first became resident in Canada in a year, the individual was not required to provide the Form T1135 for that first year, notwithstanding s. 233.3. However, if the individual emigrated but then again became a resident of Canada in a subsequent year, the individual would be required to file the form for that subsequent year.
Neal Armstrong. Summaries of 22 August 2025 External T.I. 2021-0904251E5 F under s. 12(1)(c) and s. 233.7.
CRA notes that the s. 129(6) income recharacterization rule is not relevant to whether a corporation carries on an active business for purposes of being a relevant group entity
Mr. X owned all the voting shares (with a nominal value) of A, B and D, and held preferred shares of A with a substantial value. D carried on an active business in a building leased by it from C, which was wholly-owned (as its only asset) by B. The assets of A consisted exclusively of advances to B, C and D. Upon the disposition by Mr. X of his shares of A to a “Buyco” owned and managed by his adult children, the family trust holding non-voting common shares of A, B and D will distribute its shares of A and D to Buyco.
In finding that B and C likely would not be relevant group entities (RGEs) in respect of the disposition to Buyco (so that it would not contravene s. 84.1(2.31)(c)(iii) for him to retain the voting control of B and, thus, of C), CRA stated that, although s. 129(6) might deem the rental income earned by C to be income from an active business for s. 125 purposes, this would not result in C being deemed to carry on an active business for the purposes of s. 84.1(2.31)(c)(iii). Since C did not carry on an active business, it could not be an RGE, whose definition relevantly refers to any person—other than the subject corporation and the purchaser—that, at the time of disposition, carries on an active business that is relevant to determining whether the subject shares are QSBCS.
Neal Armstrong. Summaries of 15 December 2025 External T.I. 2025-1062551E5 F under s. 84.1(2.31)(c)(iii) and s. 256(5.1).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released yesterday and in September and August of 1999. Their descriptors and links appear below.
These are additions to our set of 3,501 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).
Income Tax Severed Letters 11 March 2026
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Joint Committee notes scope concerns over the expanded hybrid mismatch rules
In addition to pointing out numerous substantial anomalies and technical difficulties, including various inappropriate departures from the more limited scope of the BEPS Action 2 Report, the Joint Committee submission on the January 29, 2026 extension of the hybrid mismatch rules makes a spirited submission on a particularly fundamental scope issue.
The Committee submits that the application of withholding tax under s. 214(18) to hybrid payer situations is an unwarranted and unnecessary extension of the ambit of the Action 2 report. The mischief addressed by the rules is unrelated to profit distributions or disguised payments, and is wholly addressed by denying the excess deductions.
Similarly, the application of withholding tax to interest paid under reverse hybrid arrangements seems inappropriate given that the deduction/non-inclusion mismatch arises from the hybrid tax status of the recipient, rather than the hybrid tax treatment of the arrangement (i.e., it is not an arrangement in which payments are treated as interest for Canadian, and dividends for foreign, tax purposes.) The interest payments do not represent disguised distributions out of the Canadian tax system, as the recipient's status as a reverse hybrid entity generally results from ownership by Canadian residents.
Even if withholding tax were to be applied to hybrid payer arrangements, withholding tax should not apply to ordinary arm's length borrowings. Although s. 214(18)(b) limits deemed dividend treatment to arm's length non-residents unless the non-resident is a “party” to a structured arrangement, this concept turns in part on being aware of the mismatch in tax outcomes, which will be readily evident whenever, for example, the borrower is a hybrid entity.
Arm's length lenders will not accept any withholding tax risk that arises simply because the borrower is a hybrid entity, a dual resident, or has a foreign branch.
Neal Armstrong. Summaries of Joint Committee, “Submission on Hybrid Mismatch Arrangements - Technical Comments and Recommendations,” 10 March 2026 Joint Committee submission under s. 18.4(1) – ordinary income, dual income inclusion, structured arrangement, hybrid entity, s. 18.4(5.6), s. 18.4(7.1), s. 18.4(15.1), and s. 214(18).
CRA finds that when Canco confers a benefit on its NR parent by selling a capital property at an undervalue, the s. 247(12) deemed dividend is only half of the benefit
In 2021, the Canadian-resident taxpayer purchased a non-depreciable capital property from its non-resident parent for $20 million, when the arm's length price was $15 million (Situation 1). Alternatively, the taxpayer sold a non-depreciable capital property to the parent for $15 million, when the arm's length price was $20 million (Situation 2).
In Situation 1, the transfer pricing capital adjustment (TPCA) was $2.5 million, which is half of the $5 million transfer pricing adjustment. In Situation 2, the transfer pricing income adjustment (TPIA) is $2.5 million, as to which the Directorate stated (quoting the TPIA definition):
[A]lthough the amount of the adjustment under s. 247(2) is $5 million, the amount “by which an adjustment made under s. 247(2) result[s] in an increase in the [Canadian] taxpayer’s income [on the sale to the non-resident]” is $2.5 million.
In Situation 1, the deemed dividend under s. 247(12)(b), being the imputed benefit to the parent, would be computed as twice the TPCA of $2.5 million. In Situation 2, the amount of the deemed dividend would be stipulated by s. 247(12)(b)(ii) to equal the TPIA of $2.5 million, rather than the $5 million deemed dividend that the CRA presumably would have assessed as a secondary benefit under s. 214(3)(a) prior to the introduction of s. 247(12) in 2012.
CRA indicated that it was “not entirely clear from a policy perspective why the amounts of secondary adjustment should differ” in the two Situations.
Neal Armstrong. Summaries of 3 February 2025 Internal T.I. 2021-0885561I7 under s. 247(1) – TPIA, and s. 247(12).
C&W Offshore – Tax Court of Canada finds that under a back-to-back rental arrangement, the immediate payee of the rentals was their beneficial owner
The Canadian taxpayer (“C&W Offshore”) subleased mooring chains from an arm's length UK company (“InterMoor UK”), which, in turn, leased the chains from its Norwegian affiliate (“InterMoor Norway”).
The Canada-UK Treaty included rentals for commercial or industrial equipment in its definition of royalties, whereas royalties under the Canada-Norway Treaty did not extend to such rentals, so that if InterMoor Norway had leased the chains directly to C&W Offshore, they would have been exempted from Canadian Part XIII tax under the Canada-Norway business profits article. C&W Offshore argued that InterMoor Norway was the beneficial owner of the royalties paid by C&W Offshore, and that the “mark-up” on the sublease from InterMoor UK represented a processing fee of InterMoor UK that was exempted under the business profits article of the Canada-UK Treaty.
In finding that InterMoor UK was the beneficial owner of the rental payments, Ouimet J indicated that under Prévost Car, “the beneficial owner is the person who receives an amount of money for their own use and enjoyment and assumes the risk and control of the amount they received”. On this basis, InterMoor UK was the beneficial owner, given that the amounts received by it were deposited into a bank account under its exclusive control, with the ability to use the funds for its own benefit and with no immediate obligation to pay the funds over to InterMoor Norway given the different payment terms for the lease and sublease. Additionally, InterMoor UK was responsible for any damage to the chains and obtained insurance to cover this risk.
The evidence also did not establish that InterMoor UK leased the chains as agent for InterMoor Norway.
In further finding that C&W Offshore had not established a due diligence defence to the imposition of penalties on it pursuant to s. 227(8)(a), Ouimet J indicated that C&W Offshore did not take any steps with respect to the possible tax implications of its payment of the rentals; and there was no evidence of it having been misled by any person or circumstance.
Neal Armstrong. Summaries of C & W Offshore Ltd. v. The King, 2026 TCC 40 under Treaties – Income Tax Conventions – Art. 13, s. 227(8)(a) and General Concepts – Agency.
CRA finds that Canadian timber royalties derived by US NPOs through a stacked partnership structure were exempted from Pt. XIII tax under XXI(1) of the Canada-US treaty
A 99% interest in a limited partnership (“Third Tier LP”) was held by two U.S.-resident non-profit organizations (the “Tax Exempt Partners”), which were exempt under Art. XXI(1) of the Canada-US Treaty and were “qualifying persons”, through two intermediate partnerships. The remaining 1% interest in Third Tier LP was held by a Canadian-resident corporation (“Canco1”), which was unrelated to the Tax Exempt Partners.
Third Tier LP received timber royalties and rents (the “royalties”) from the exploitation of its Canadian real property by a corporation (“Canco2”) which was related to Canco1. None of the above partnerships carried on a trade or business in Canada, and they were treated as partnerships for US and Canadian income tax purposes.
CRA noted that:
Article IV (7)(a) might apply to deny Treaty benefits on an amount of income, profit or gain received by a resident of one of the Contracting States (e.g., the United States) through an entity that is a non-resident of the United States and that is treated as fiscally transparent in the source state (Canada) but not in the residence state (the United States).
However, that was not the case here as the partnerships were fiscally transparent for US purposes. CRA concluded that royalties derived by the Tax Exempt Partners were exempt from Canadian withholding tax under the Treaty.
Neal Armstrong. Summary of 5 November 2025 External T.I. 2020-0868261E5 under Treaties – Income Tax Conventions – Art. 4.
CRA confirms that the s. 95(2)(f.11)(ii)(D)(I) denied FAPI deduction under the EIFEL rules is not reduced by the CFA’s variable B credits
Part 2M of the schedule (Sched. 130) used for EIFEL reporting, computes the amount that is not deductible from FAPI under s. 95(2)(f.11)(ii)(D)(I) principally by multiplying the “Amounts determined for variable A in the definition of IFE [interest and financing expense] for the affiliate” by the non-deductible EIFEL proportion in the s. 18.2(2) formula.
An external stakeholder suggested to CRA that the quoted description was incorrect and should instead refer to any amounts included in the CFA’s relevant affiliate interest and financing expenses (RAIFE). Principally, this would have signified that the quoted amount is reduced by the variable B (income amount) components of the CFA’s RAIFE computation.
The Directorate rejected this suggestion, stating:
The limitation rule of subclause 95(2)(f.11)(ii)(D)(I) does not apply to a net amount of RAIFE totalling all the amounts to be considered in computing a CFA’s IFE, but only to certain amounts included in variable A of the IFE definition.
However, it added a recommendation that the quoted amount instead refer to:
“Amount determined for variable A (excluding amounts under paragraphs (h) and (j)) in the definition of IFE for the affiliate”.
Neal Armstrong. Summary of 30 October 2025 Internal T.I. 2025-1068441I7 under s. 95(2)(f.11)(ii)(D)(I).
Neal H. Armstrong editor and contributor