News of Note
Chobham Corp. – Tax Court of Canada finds that a s. 94(3) trust with a Quebec resident contributor was subject to double tax
Email this ContentThe taxpayer, which was a trust that was factually resident in Panama but was deemed under ITA s. 94(3) to be resident in Canada because it had a resident contributor who resided in Quebec, was assessed for federal surtax under s. 120(1) and was denied the Quebec abatement under s. 120(2), on the basis that, as per Reg. 2601(1), it was not resident in Quebec (or any other particular province) on December 31 of the particular taxation years and thus did not have any "income earned in the year in a province" as defined in s. 120(4). However, because the resident contributor was a resident of Quebec, the trust was also subject to taxation on its income under the Taxation Act (Quebec), notwithstanding the absence of relief from the federal surtax or through the Quebec abatement.
In confirming the federal reassessments and in rejecting the trust’s submission that it was resident in a province (Quebec) for purposes of Reg. 2601(1) because it was deemed to be resident in Quebec for TA purposes, Clark J stated:
The use [in Reg. 2601(1)] of the word “resides” refers to established principles of residency under the Income Tax Act. While taxpayers may be deemed resident in Canada under various provisions such as paragraph 94(3)(a), those provisions do not apply for the purpose of Regulation 2601(1) because they do not refer to any particular province.
Regulation 2601(1) [only] applies if the individual is factually resident in a province on December 31 of a particular taxation year. …
Federal and provincial tax liabilities remain separate jurisdictional issues.
Neal Armstrong. Summary of Chobham Corporation Ltd. v. The King, 2026 TCC 127 under Regulation 2601(1).
LG Electronics – Federal Court allows taxpayer to make additional submissions to CRA in addition to the usual remedy for a successful judicial review of an interest-waiver decision
In November 2018, the Minister reassessed the Canadian taxpayer to give effect to a bilateral advanced pricing agreement (APA) between Canada and South Korea respecting sales of goods between the taxpayer’s South Korean parent and it.
In February 2017, the taxpayer applied for interest and penalty relief relating to the APA program, and in November 2019 requested such relief respecting alleged errors in processing advance payments made to CRA. The parties agreed that a CRA decision to grant only limited relief was based on inaccurate findings of fact.
D’Agostino J found no basis to depart from the usual remedy of remitting the matter back to CRA for reconsideration by a different decision-maker, other than to allow the taxpayer to provide further submissions to CRA within 30 days to address errors that it became aware of following receipt of the certified tribunal record.
She denied two further requested forms of relief having regard inter alia to "the distinct roles of the decision-maker and the reviewing court": (i) this did not constitute an exceptional situation where (as submitted by the taxpayer) CRA should be directed to provide its new decision-maker with a corrected set of facts as drafted by the taxpayer (and disputed, in part, by the Crown); and (ii) the taxpayer had not provided clear evidence and jurisprudence supporting its proposal that the new CRA decision be required to be made within 30 days.
Neal Armstrong. Summary of LG Electronics Canada Inc. v. Canada (Attorney General), 2026 FC 895 under s. 220(3.1).
Liu – Tax Court of Canada finds that the expanded s. 152(9) does not permit the Minister to advance a new argument based on transactions that were not the subject of the reassessments
The Minister's reassessments of the taxpayers were made on the assumption that their offshore corporations generated unreported employment and business income, and capital gains, to them. After the taxpayers had appealed, the Attorney General filed Replies asserting that income of controlled foreign affiliates of the taxpayers constituted foreign accrual property income (FAPI) to them.
Clark J noted that Walsh (2007 FCA 222) had “held that the pre-2016 version of subsection 152(9) did not permit the Minister to include in its alternative argument transactions which did not form the basis of the taxpayers' reassessment” and that the 2016 amendments (expanding s. 152(9) to permit the advancing of an additional source of income) should be narrowly construed on the basis that “Parliament is taken to have been aware of the jurisprudence limiting subsection 152(9) to the transactions that formed the basis of the taxpayers' reassessment.” She stated:
I find it plain and obvious that amended subsection 152(9) does not enable the Minister to raise new arguments and bases arising from an entirely new set of transactions. An assessment of tax liability under the FAPI rules requires a determination of the income of a Canadian taxpayer's foreign affiliates. The Minister made no such … determination … prior to reassessment.
The FAPI pleadings were struck.
Neal Armstrong. Summaries of Liu v. The King, 2026 TCC 126 under s. 152(9), Rule 8 and Statutory Interpretation – Prior Cases.
GST/HST Severed Letters April 2025
This morning's release of 17 severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their April 2025 release) is now available for your viewing.
CRA rules on a classic pipeline with a slow note repayment schedule
CRA ruled on classic postmortem pipeline transactions under which:
- Holdco, holding portfolio investments, will repurchase and redeem a portion of its shares held by the estate, with the resulting deemed dividends designated as eligible dividends, and the resulting capital loss carried back under s. 164(6);
- the estate will transfer all its common shares of Holdco on an s, 85(1) rollover basis to a Newco in consideration for a demand promissory note and preferred shares;
- after one year, Holdco and Newco will amalgamate to form Amalco; and
- Amalco will gradually repay the note held by the estate at a rate of 1/3 of the original principal amount each year.
Neal Armstrong. Summary of 2024 Ruling 2024-1031041R3 F under s. 84(2).
CRA has published the 2 June 2026 STEP Roundtable
CRA has published the 2 June 2026 STEP Roundtable under its severed letter program. For your convenience, the table below links to the individual items and our summaries prepared last month.
Income Tax Severed Letters 15 July 2026
This morning's release of 17 severed letters from the Income Tax Rulings Directorate is now available for your viewing.
SKAT – UK Supreme Court in a VAT fraud case finds that the doctrine of issue estoppel has a narrow scope
The Danish tax administration (“SKAT”) brought proceedings in 2018 against the defendant (“EDFM”) on the basis that EDFM was liable for negligent misrepresentations contained in tax vouchers issued to its clients which they used in support of withholding tax refund applications to SKAT. This claim was found in the Commercial Court to be unavailable by virtue of the revenue rule.
In 2022, SKAT brought new claims against EDFM, alleging that it had prepared fraudulent tax vouchers for the sole purpose of inducing the payment of withholding tax refunds to EDFM’s clients, which were U.S. or Canadian pension plans. Regarding whether the 2022 proceedings were barred by issue estoppel, Lord Sales and Lord Doherty stated:
[A]n issue estoppel has a very narrow focus, being concerned with the facts that are fundamental or ultimate (in the sense that they necessarily had to be established to make good the cause of action being alleged or a defence put forward) and the legal quality of those particular facts. …
The 2018 Claim against EDFM alleged negligent misrepresentation. It did not allege fraud. The factual and legal bases of the 2018 Claim and the 2022 Claim are different. They were different causes of action.
By way of elaboration:
One reason why the scope of an issue estoppel is limited to the immediate foundation of a decision is that it would be potentially unjust for a party to be estopped by elements of judicial reasoning which went wider than was necessary for the prior court to determine the particular case before it. ... The scope of an estoppel should not depend upon the happenstance of how widely or narrowly a judge chooses to frame the reasoning in their judgment. …
It would be contrary to the coherent application of the law in this area, and would work injustice, to give the doctrine of issue estoppel an expansive interpretation which cut across and significantly displaced the rules on abuse of process, which provide the appropriate framework for regulation of what has happened in this case. …
Over-extensive application of the doctrine of issue estoppel, beyond the field in which it is strictly required to do justice between the parties to litigation, would undermine the balance struck more generally in the public interest, and taking account of the private interests of the parties, by the doctrine of precedent.
Neal Armstrong. Summary of Skatteforvaltningen (The Danish Customs and Tax Administration) v MCML Ltd (previously known as ED&F Man Capital Markets Ltd) (Rev1) [2026] UKSC 19 under General Concepts – Estoppel.
CRA is reviewing each voluntary GAAR disclosure
Regarding filings under the optional GAAR reporting rule in s. 237.3(12.1), CRA stated:
The CRA is reviewing each disclosure filed under the optional GAAR reporting rules and will determine on a case-by-case basis whether further audit action is needed. Audits and assessments will be consistent with regular CRA practices and procedures. …
While the information is managed centrally at head office, the information will generally be shared with large file case teams in the regional offices; the same would equally apply to small corporations/taxpayers.
Neal Armstrong. Summary of 18 November 2025 TEI Roundtable, Q. B.5 under s. 237.3(12.1).
Stern – Tax Court accepts that foreign tax slips were sufficient to evidence that foreign withholding taxes were payable by the taxpayer
CRA denied the foreign tax credit claims of the taxpayer for German and Swiss taxes withheld from dividends received by her from German and Swiss companies. The Crown argued that it was insufficient for the taxpayer to show that the tax had been withheld and that she was required to produce tax assessments from those countries (which she could not do, because she had not filed tax returns in those countries).
Graham J., in allowing her appeal, found that it was sufficient for her to produce copies of the foreign tax slips. He noted that she recognized that she was not entitled to a credit for German or Swiss tax withheld in excess of the treaty rate of 15%.
Neal Armstrong. Summaries of Stern v. The King, 2026 TCC 131 under s. 126(1) and s. 171(1).
Neal H. Armstrong editor and contributor