News of Note
CRA finds that crypto is not “goods” for s. 95(3)(b) purposes
Email this ContentA foreign affiliate of Canco provided investment management and trading execution services to Canco in relation to Canco’s Canadian cryptocurrency trading business.
Does the exception in s. 95(3)(b) from the application of s. 95(2)(b) for “services performed in connection with the purchase or sale of goods” apply in relation to cryptocurrencies? After referring inter alia to Canadian Wirevision, which essentially found that “goods” referred to “tangible movable property” and to the anti-base erosion objective of the s. 95(2)(b) rules, which would be satisfied where the services, by their nature, were required to be performed outside of Canada, but not here where such services could be performed in Canada, CRA concluded that cryptocurrency, being intangible property, was not “goods.”
Neal Armstrong. Summary of 13 May 2026 IFA Roundtable, Q.2 under s. 95(3)(b).
CRA indicates that s. 84(2) generally does not apply to a payment made by Amalco to a shareholder dissenting to the amalgamation
A shareholder dissents to an amalgamation and receives a payment from the amalgamated corporation for the fair value of its shares. Would s. 84(3) apply?
After noting its longstanding position that s. 84(3) would not apply to a payment made to a shareholder dissenting to an amalgamation by the amalgamated corporation, so that capital gains treatment would apply, CRA went on to indicate that it would not generally view such payments as falling under s. 84(2).
However, if it determined that applying s. 84(2) was necessary to give effect to the provision’s underlying anti-avoidance purpose, then it may be invoked.
Neal Armstrong. Summary of 13 May 2026 IFA Roundtable, Q.1 under s. 84(2).
CRA postpones the implementation of its new GST/HST policy on trailing commissions
In 22 December 2025 GST/HST Interpretation 246664, CRA rejected a submission that GST/HST did not apply to dealer trailing commissions earned by a dealer (the “New Dealer”) who is not the dealer (the “Original Dealer”) who arranged the sale and issuance of the subject mutual fund trust units or shares, and concluded:
Effective July 1, 2026, mutual fund trailing commissions paid by [mutual fund] Managers to both Original Dealers and New Dealers will generally be subject to GST/HST.
However, on May 13, 2026, the CRA verbally informed various industry groups that it intends to grant a material extension to the implementation deadline for this new policy; and that it will provide further details regarding the enforcement of its administrative position in a notice to be published by the end of the month.
Neal Armstrong. Summary of EY Tax Alert – Canada, “CRA intends to postpone new administrative position on GST/HST treatment of trailing commissions,” 2026, Issue No. 30, 14 May 2026 under ETA s. 123(1) – asset management service.
CRA generally will only make a single penalty assessment for a trust filing failure for a year described in s. 163(5)
Regarding whether more than one person may be assessed a penalty under s. 163 regarding a failure to file (or respond to a demand to file) a T3 return for a taxation year or regarding the making of a related false statement or omission, CRA generally concluded:
While more than one person or partnership may, in principle, meet the statutory conditions for liability to the Penalty under subs. 163(5), our view remains that a single assessment to the trust would reasonably be sufficient and appropriate to carry out the legislative scheme of the Act and enforce compliance, barring egregious or independent fault by others.
However, it noted that if more than one person or partnership was responsible for making relevant false statements, “there would be the potential for more than one person or partnership to be liable for the penalty under s. 163(5)(a)(i).”
It further indicated that since ss. 163(5) and (6) “are arguably more specific” than ss. 162(1), (2), and (7), and 163(2), the s. 163(5) penalty “should take precedence over penalties in those less specific provisions.”
Neal Armstrong. Summary of 7 January 2026 Internal T.I. 2024-1007421I7 under s. 163(5).
The site is back up (and here is a thumbnail IFA Roundtable summary)
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Since our previous post announcing the publication of the 2026 IFA Roundtable now contains a broken link, this updated post provides a fresh link. Here is a brief summary of IFA highlights (with more detailed posts to follow next week):
- Q1: S. 84(2) generally does not apply to a payment made by an amalgamated corporation to a dissenting shareholder.
- Q2: Crypto is not “goods" for the purposes of the s. 95(3)(b) exception.
- Q3: No remittance under s. 116(5) is required for an s. 51(1) exchange.
- Q4: When a s. 116 certificate is issued for a share redemption, any remittance requirement under s. 116 will not be calculated on the portion of the redemption proceeds that is deemed to be a dividend (this, like Q.3, is a revised position).
- Q5: On the partial repayment of USD debt with forgiveness of the balance, the s. 39(2) gain or loss is computed on a net basis.
- Q6: CRA appears generally open to allowing a Canadian corporation to claim a s. 126(1) FTC on a distribution from a U.S. subsidiary that produces a capital gain for Canadian purposes, but is a dividend subject to 5% withholding tax for U.S. purposes, provided there is no double deduction/credit involved.
- Q7: CRA also applies a facts-based approach to determining in which Canadian taxation year an FTC can be claimed when there is a mismatch between the taxation years of Canco and of the applicable FA on whose shares US FIRPTA tax was paid.
Neal Armstrong. 13 May 2026 IFA Roundtable.
CRA indicates that the Ontario government avoids source deduction and T4A reporting obligations by routing PSW incentive payments to their employers
An Ontario government program to attract personal support workers (PSWs) provided for the payment to them of cash incentives, such as a clinical placement stipend of up to $5,400, and a recruitment incentive payment of $10,000.
CRA indicated that, given the program was designed to have employers deliver such payments directly to PSWs, the amounts received by the PSWs would be included in their employment income under s. 5(1); and would be subject to source deductions and T4 reporting by the employer.
It further noted that if the Province had instead designed a program to deliver the above payments directly to the PSWs, the amounts received by them would have been included in their income pursuant to s. 56(1)(r)(i) (i.e., as “earnings supplements provided under a project sponsored by a government … in Canada to encourage individuals to obtain or keep employment”) so as to impose source deduction and T4A reporting obligations on the Province.
Neal Armstrong. Summary of 22 January 2026 External T.I. 2025-1078871E5 under s. 5(1).
We have translated 5 more CRA interpretations
We have translated a further 5 CRA interpretations released in May of 1999. Their descriptors and links appear below.
These are additions to our set of 3,563 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).
| Bundle Date | Translated severed letter | Summaries under | Summary descriptor |
|---|---|---|---|
| 1999-05-28 | 6 January 1999 Internal T.I. 9816727 F - METHODE DE REMPLACEMENT- MATERIEL CONSOMME | Income Tax Act - Section 37 - Subsection 37(8) - Paragraph 37(8)(a) - Subparagraph 37(8)(a)(ii) - Clause 37(8)(a)(ii)(B) - Subclause 37(8)(a)(ii)(B)(V) | “materials consumed” does not refer to use of equipment |
| Income Tax Act - Section 127 - Subsection 127(27) | overhead costs incurred in constructing engines are not included/ property used for testing purposes and then disposed of, could qualify | ||
| 10 February 1999 Internal T.I. 9829297 F - SÉCHOIRS A BOIS - AMORTISSEMENT | Income Tax Regulations - Schedules - Schedule II - Class 8 - Paragraph 8(c) | buildings comprised of cells used to dry wood together with the heating equipment in another building constituted “kilns” used in processing | |
| 14 April 1999 Internal T.I. 9831627 F - INTEREACTION 1100(11) ET 13(21.2)E)(III) | Income Tax Act - Section 13 - Subsection 13(21.2) - Paragraph 13(21.2)(e) - Subparagraph 13(21.2)(e)(iii) | rental property restriction rules do not apply to s. 13(21.2)(e)(iii) property | |
| Income Tax Regulations - Regulation 1100 - Subsection 1100(11) | Reg. 1100(11) does not apply to a s. 13(21.2)(e)(iii) property | ||
| 21 January 1999 Internal T.I. 9900197 F - DÉDOMMAGEMENT PAYÉ À UN LOCATAIRE | Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Damages | damages paid for having caused tenant disruption from renovations were an addition to building cost if such renovations were capital expenditures | |
| Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(c) | interest for damages received for loss of a subtenant was taxable – interest on damages for personal loss and on exemplary damages was non-taxable | ||
| Income Tax Act - Section 13 - Subsection 13(21) - Undepreciated Capital Cost - A | interest and legal fees incurred re damages paid for having caused tenant disruption from renovations were an addition to building cost if such renovations were capital expenditures | ||
| 14 April 1999 Internal T.I. 9901637 F - CATEGORIE 41 -LIE A SOI MEME | Income Tax Regulations - Schedules - Schedule II - Class 41 - Paragraph (a.1)) - Subparagraph (a.1)(iv) | (a.1)(iv) exclusion for NAL acquisition did not apply where the taxpayer acquired the property that it previously had leased | |
| Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | a person does not deal not-at-arm’s-length with itself unless deemed to do so |
Zhang - Tax Court of Canada finds that a settlement agreement, which could be reasonably inferred, was enforceable by it – and s. V-I-4(b) requiring a previous supply does not require its assessment
Mr. Tan and his spouse, Mrs. Zhang, moved into a residence (the Eldora property) in July 2014 when its reconstruction by them was completed. They then sold the property in February 2015. In July 2017, one month after having received an occupancy permit therefor, they sold a second residential property (the Olive property) after having completed its reconstruction in September 2016.
After the appellants’ appeal of CRA reassessments of both sales transactions on the basis that they were taxable rather than exempt and imposing a gross negligence penalty on Mr. Tan, the appellants’ counsel (Mr. Laregina) sent a proposal to the Justice lawyer that the matter be settled principally on the basis that the sale of the Eldora property was an exempt supply pursuant to s. V-I-4(b), and that the sale of the Olive property be treated as taxable; and that the gross negligence penalty be reversed.
Ultimately, the Justice lawyer responded, agreeing to those terms except for the deletion of the gross negligence penalty, to which Mr. Laregina responded with his acceptance. However, when the Justice lawyer drafted the minutes of settlement, it became apparent that she considered the settlement agreement to also include an agreement that the couple would be assessed under the self-supply rule under s. 191(1) in respect of the substantial completion of the Eldora property in October 2014 (a month which CRA had not audited or assessed) and that they would be expected to waive the right to object to such assessments.
They then brought this motion to enforce the settlement agreement, which they claimed had been entered into upon Mr. Laregina's acceptance of the counteroffer. Before finding that the appellants’ interpretation of the terms of the settlement agreement (i.e., excluding any agreement re the pre-2015 period) was correct and granting their motion, Rabinovitch J rejected the Crown’s submission that the Tax Court lacked jurisdiction to enforce a settlement agreement in this case because no signed consent to judgment had been filed pursuant to s. 170 of the Rules.
Rabinovitch J went on to find that instead the question in this case was whether a settlement agreement was reached under the common law of contract in Ontario. This question was illuminated by the Apotex decision (2016 FCA 155), which indicated that the parties not having signed a more formal document to record their agreement after the fact did not prevent them from having formed a binding contract before any such a document was prepared. Furthermore, under the Apotex test as to what a reasonable person would have concluded from what the parties said or did, the appellants had established that there was matching offer and acceptance on all essential terms; and that although there may have been a unilateral mistake on the part of the Crown regarding the terms of the agreement, a unilateral mistake as to terms is generally insufficient to render a contract void at common law unless the other party knows that the mistaken party is operating under an invalid assumption or voidable under the law of equity where it ought to have known of such mistake. No such circumstance had been established here.
Finally, regarding the Crown’s claim that the principled settlement rule was not complied with under the alleged terms of the agreement because the appellants had not in fact been assessed under the s. 191(1) rule, so that the settlement agreement violated the policy of s. 4(b), Rabinovitch J stated:
Subsection 4(b) of Schedule V … covers the sale of a single unit residential complex made by a builder who has “was deemed under subsection 191(1) or (2) of the Act to have received a taxable supply of the complex or unit by way of sale, and that supply was the last supply of the complex or unit made by way of sale to the builder.” It does not require an assessment to have been issued in respect of that supply.
Neal Armstrong. Summary of Zhang v. The King, 2026 TCC 71 under ETA s. 309.
Canadian taxpayers may not be able to rely on the presence of hybrid mismatch rules in other jurisdictions to avoid adverse consequences under the Canadian proposals
Comments on the second round of hybrid mismatch rules include the following:
The hybrid payer rules can lead to results that do not appear to have been contemplated. For example, if a U.S. corporation has a wholly owned disregarded Canadian unlimited liability company (ULC) and the ULC provides contract R&D services to its shareholder on a cost-plus basis, the ULC's revenue does not qualify as dual-inclusion income because it its disregarded for U.S. purposes. Accordingly, even though the ULC is subject to Canadian tax on its profits, all of its otherwise deductible expenses could be denied under the hybrid payer rules.
Furthermore, anomalous results occur because dual-inclusion income is computed on an entity-by-entity basis, not a jurisdictional basis, as contemplated in the BEPS Action 2 report. For example, an operating company may pay a management fee to a separate legal entity that incurs compensation expense. If both entities are hybrids, the management fee could be disregarded for foreign tax purposes, causing the compensation expense to create a double-deduction mismatch. While the operating income qualifies as dual-inclusion income, the income and expense arise in separate legal entities and cannot be offset, potentially resulting in the denial of the compensation expense under the hybrid payer rules.
Under the Canadian hybrid-payer rules, a deduction will be denied only to the extent that it has not already been denied in the investor's country under that jurisdiction's own hybrid mismatch rules. However, a deduction may be allowed in the U.S. under its consolidated loss dual consolidated loss (DCL) rules but denied in Canada under its hybrid payer rules, which could occur because the U.S. includes subpart F or tested income when computing dual-inclusion income, whereas Canada does not.
Furthermore, Canada generally denies a deduction upfront and allows it later if sufficient dual-inclusion income arises; whereas the DCL rules allow the deduction initially unless the loss is later used to offset non-dual-inclusion income.
Finance has been asked for further guidance on whether the U.S. DCL rules qualify as hybrid foreign or foreign hybrid mismatch rules.
Regarding the imported mismatch arrangement rules, the Canadian rules align with the Action 2 recommendations in that an “imported payment” (i.e., a deductible payment by a Canadian taxpayer) can be linked with an “offshore mismatch payment” (i.e., the payment giving rise to an offshore hybrid mismatch) without the two payments being linked causally or factually in any way. Instead it is sufficient that the recipient of one payment be the payer of another within a chain of entities connecting the Canadian taxpayer with the payer of the mismatch payment.
Neal Armstrong. Summaries of Mark Dumalski, “The Unexpected Implications of Canada's Latest Anti-Hybrid Proposals,” International Tax Highlights, Vol. 5, No. 2, May 2026, p. 4 under s. 18.4(15.6) and s. 18.4(15.94).
Hunt – Federal Court of Appeal finds that the s. 207.05 advantage tax was not a penalty subject to a due diligence defence, and that it was not constitutionally invalid
The taxpayer challenged the validity of advantage-tax assessments made on him pursuant to s. 207.05 in respect of his TFSA on the grounds that ss. 207.05 and 207.06, in substance, imposed a penalty for which a defence of due diligence was available rather than a tax. He also argued that, since under those provisions the Minister effectively had the discretion as to the rate of tax to be imposed (by being able to waive anywhere between 100% and 0% of the tax), those provisions were contrary to s. 53 of the Constitution Act, 1867, which established a "no taxation without representation" principle.
In finding that those provisions did not impose a penalty, Stratas JA indicated inter alia that “recharacterizing the regime as imposing a penalty” so as to “bring into operation a defence of due diligence … would undermine [the] intricate and detailed scheme provided under the provisions.”
In finding that the discretion accorded to the Minister under s. 207.06(2) did not violate s. 53, he indicated that the provision did not establish “a standardless sweep for the Minister,” whose waiver discretion thereunder was to be guided by the factors listed in that provision and “by the need to curb abuse of the tax-free savings account regime bearing in mind the purposes of that regime.” – and, to boot, a waiver decision of the Minister under s. 207.06(2) was “a reviewable decision subject to legal constraints set by Parliament in s. 207.06, not a purely policy-based guess by the Minister about what a number should be”.
Neal Armstrong. Summaries of Hunt v. Canada, 2026 FCA 88 under s. 207.06(2) and Constitution Act, 1867, s. 53.
Neal H. Armstrong editor and contributor