News of Note
Desjardins Sécurité financière Compagnie d’Assurance Vie – Tax Court of Canada applies the presumption against derogating from Superior Court jurisdiction
Email this ContentThe taxpayer, an insurer, was assessed by CRA for Nova Scotia large corporations tax that was imposed pursuant to the Income Tax Act (Nova Scotia) but calculated in accordance with ITA s. 181.3. Smith J. found that the Tax Court lacked the jurisdiction to consider the taxpayer's appeal of this assessment.
The taxpayer had submitted that the statement in s. 75 of the Nova Scotia Act - that various provisions, including the Division J provisions regarding ITA appeals, applied to the large corporations provisions of Part III of the Nova Scotia Act - contrasted with a provision of the Nova Scotia Act stating that s. 169 applied for the purposes of that Act, which indicated a legislative intention that large corporations could appeal Nova Scotia large corporations tax assessments to the Tax Court.
In rejecting this submission, Smith J noted the established “rule that any derogation from the jurisdiction of the provincial superior courts (in favour of the Federal Court or otherwise) requires clear and explicit statutory language” and found that, rather than there being any such derogation, s. 2(10)(j) of the Nova Scotia Act had an “unambiguous” statement that the references in the cross-referenced ITA procedural provisions to the Tax Court of Canada referred to the Supreme Court of Nova Scotia.
Neal Armstrong. Summary of Desjardins Sécurité financière Compagnie d’Assurance Vie v. The King, 2026 CCI 109 under ITA s. 169(1).
We have translated 5 more CRA interpretations
We have translated a further 5 CRA interpretations released in April of 1999. Their descriptors and links appear below.
These are additions to our set of 3,600 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 27 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 30 June 2026
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA notes that Canadian partners are relieved from filing T1135s where they hold “their” foreign property through a foreign partnership in which they have a 10% interest
A foreign partnership holding foreign investment property with a cost amount over $100,000 constituted a “specified Canadian entity” because its Canadian-resident partners held partnership interests entitling them to at least 10% of the income (or loss) of the partnership during the period, so that it was required to file T1135 returns.
The Canadian partners were not required to file a T1135 if their only relevant property was their interest in the partnership, given that an interest in a partnership that is a specified Canadian entity is excluded from being “specified foreign property” pursuant to para. (o) of that definition.
Neal Armstrong. Summary of 2 June 2026 STEP Roundtable, Q.15 under s. 233.3(1) – specified Canadian entity – (b).
41 Victoria SENC – Court of Quebec finds that a tenant inducement payment (TIP) tied to an increase in basic rent was currently deductible to the landlord
A Quebec general partnership (“SENC”) with individual partners agreed with a prospective tenant (“Brookfield”) that it would:
- erect a new building on its lands at its own cost;
- construct the tenant improvements needed by Brookfield (amounting to $17 million) at Brookfield’s cost; and
- pay a tenant improvement allowance of $4.6 million to Brookfield upon Brookfield taking possession.
The lease agreement stated that reimbursement by Brookfield of the allowance would be accomplished by being “amortized over the [15-year] Lease Term and added to the Basic Rent, interest-free.”
Davignon JCQ rejected the ARQ's position that the allowance was a loan to Brookfield, indicating that this was inconsistent with the parties’ agreement being one of lease and with the rejection in Shell of an “economic realities” approach, and further stated:
SENC did not intend to grant Brookfield an interest-free loan, but rather to induce it to commit to a long-term lease by offering it an allowance, among other advantages also provided for in the Lease.
In finding that the allowance was currently deductible by SENC, when paid in 2015, he stated:
[T]he Canderel … rule is simple: a taxpayer may deduct a TIP [tenant inducement payment] … in full in the year of payment where the TIP generates both immediate benefits and benefits relating to future income. …
In this case, as in Canderel, the TIP generated at least one immediate benefit to SENC that materialized in the 2015 taxation year, namely the avoidance of the “hole in income” that the company would have continued to sustain had the mortgaged building remained vacant.
Neal Armstrong. Summaries of 41 Victoria SENC v. ARQ, No. 500-80-040518-202, 22 June 2026 (Court of Quebec) under s. 18(1)(a) – capital expenditure v. expense – current expense v. capital acquisition and s. 9 - timing.
IWK Health – Federal Court of Appeal declines to depart from Westcoast’s finding that employers could not claim HST on the reimbursed health care expenses of their employees
Some Nova Scotia hospitals reimbursed (through a health care plan administrator) their employees for the employees’ costs (including HST) of acupuncture, massage therapy, naturopathy, or homeopathy services. The hospitals took the position that they were deemed by s. 175 to have received those care services themselves, and claimed public service body (PSB) rebates accordingly.
The Tax Court had followed the FCA decisions in Westcoast Energy and ExxonMobil in rejecting this position, stating that those services were “of a particularly personal and individual nature” and that she would expect the employees “to access these types of services on their personal time.” Accordingly, these services did not satisfy the s. 175 test of being “for consumption or use … in relation to activities” of the hospitals.
On appeal, the taxpayers were unsuccessful in establishing that those two decisions were manifestly wrong, i.e., they overlooked a relevant statutory provision or a case that ought to have been followed. In particular, although neither case mentioned General Motors, this could be explained by that case being concerned with expenses incurred by the employer, rather than (as in the above two cases) with expenses incurred by the employees and later reimbursed by the employer.
Neal Armstrong. Summary of IWK Health Centre v. Canada, 2026 FCA 113 under ETA s. 175(1).
CRA indicates that a CCUS credit cannot be claimed at the regular rate while a wage shortfall has not yet been corrected, and that such shortfall does not taint future years
Commencing in 2025, Canco started engaging in the construction and installation work for a Canadian carbon capture project that was a qualifying CCUS project. A portion of its installation expenses for 2025 included an amount paid to a contractor who it later learned had three employees who were covered workers but who had not been compensated in accordance with the prevailing wage requirement, i.e., each worked 100 days in 2025 at less than the prevailing wage rate, resulting in a total shortfall for the three workers of $2,600. Canco has not received any cooperation of the contractor in remedying that shortfall.
CRA indicated that if, at the time of making the CCUS tax credit claim for its 2025 taxation year, Canco knew that it had not satisfied the labour requirement, then it should not elect under s. 127.46(2) even though it was seeking to remedy the shortfall – and if it did, it might be subject to the gross negligence penalty under s. 127.46(9). Canco would have until June 30, 2027 to have the shortfall paid and still be able to then claim the CCUS tax credit for that year.
If Canco only discovered that it did not meet the compensation requirement after it had elected and claimed the CCUS tax credit in its 2025 return, then the additional tax under s. 127.46(6) would be computed as $22 per day for the 300 work days involved, for a total of $6,600.
Regarding the reasonable steps referred to in the attestation requirement under s. 127.46(3)(b)(ii), CRA indicated that Canco could, for example, have obtained the appropriate covenants from the contractor, including that the contractor would meet the prevailing wage requirements, permit regular monitoring of compliance with the labour requirements, provide appropriate updates at reasonable project intervals, and provide written compliance declarations.
CRA further indicated that, as Canco would meet the labour requirements for 2026 and 2027, Canco could elect under s. 127.46(2) in making its claims for the CCUS tax credit for its 2026 and 2027 taxation years, notwithstanding a failure for its 2025 taxation year.
Neal Armstrong. Summaries of 28 April 2026 External T.I. 2025-1081341E5 under s. 127.46(3) and s. 127.46(6).
CRA comments on how to apply the more closely-connected test in s. 212.3(16) where Canco has overlapping officers with its non-resident parent
A US-resident public company (US Pubco) wholly owns US Holdco, which in turn wholly owned USCo, as well as Canco, which has foreign subsidiaries. In 2021, Canco acquired the shares of US Sub from US Holdco for FMV consideration. At the time of acquisition, Canco, Canco’s foreign subsidiaries, and US Sub carried on Business Segment 1; whereas , US Holdco carried on Business Segment 2.
Two of the three Canadian-resident senior officers of Canco, all working in Canada (the CEO and CFO) were also the CEO and CFO of US Pubco and US Holdco; and their compensation was based on the consolidated results of the group, whereas that of the third executive of Canco, who managed the day-to-day operations of Business Segment 1, was based solely on the results of Business Segment 1, which includes US Sub’s results. Conversely, the compensation of another (non-resident) executive, who managed the day-to-day operations of Business Segment 2, was based solely on the results of Business Segment 2.
In a lengthy and diffuse (it’s-a-question-of-fact) response, CRA indicated inter alia that, for s. 212.3(16) purposes:
- at the investment time, the business activities of US Sub were part of Business Segment 1 and were similar to the business activities carried on in Canada by Canco in the same business segment; therefore, the business activities of US Sub appeared to be closely connected with the business activities of Canco for purposes of the "more closely connected business activities" test in s. 212.3(16)(a);
- the “reasonably expected” test in the preamble to s. 212.3(16)(c) referenced a test “by an objective observer with knowledge of all of the pertinent facts”; and
- regarding whether it is sufficient that the performance evaluation and compensation of the officers of Canco be based on the results of the business segment of which US Sub was a part, rather than being tied specifically to the results of US Sub, CRA indicated that, for the purposes of s. 212.3(16)(c)(iii), “one must generally demonstrate that some proportion of the performance evaluation and compensation of the officers is based to some extent on the operating results of the subject corporation.”
Neal Armstrong. Summary of 2 April 2026 External T.I. 2021-0917901E5 under s. 212.3(16).
Income Tax Severed Letters 24 June 2026
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that the s. (g)(iv) exclusion from the indefeasible-vesting exception to the 21-year deemed disposition rule can apply to a s. 94(3) trust
Although the definition of trust in s. 108(1) generally excludes a trust from the application of the 21-year deemed disposition rule in s. 104(4) where all interests in the trust have vested indefeasibly, there are exclusions to this rule, for instance, that in s. (g)(iv) of the definition, which refers to a “trust that is … resident in Canada” where (speaking generally) one or more non-resident beneficiaries have more than a 20% FMV interest in the trust.
CRA found that the quoted wording applied to a trust that was not factually resident in Canada but was deemed to be resident in Canada pursuant to s. 94(3) – so that it would be excluded from the benefit of the indefeasible-vesting exception where, for instance, it had a U.S. resident beneficiary who was entitled to 50% of its income and capital.
Before so concluding, CRA indicated that:
- ss. 94(3)(a)(i) and (ii) provide that a deemed resident trust is deemed to be resident in Canada for purposes of applying s. 2 and for computing its income under Part I;
- the subjecting of such a trust to Part I tax on its worldwide income extended to income arising from deemed dispositions under, for instance, s. 104(4); and
- the definition of "trust" in s. 108(1) impacted the application of the deemed disposition rule in s. 104(4) so that such definition was relevant for computing the trust's income for the year.
Neal Armstrong. Summary of 2 June 2026 STEP Roundtable, Q.14 under s. 108(1) – trust – (g)(iv).
Neal H. Armstrong editor and contributor