News of Note
Jewish National Fund - Federal Court of Appeal finds that the Federal Court lacked jurisdiction to review a decision of the Minister to publish notice of revocation of charitable registration
Email this ContentThe Minister sent a notice of intention to revoke (“NITR”) to the appellant, a registered charity. After the Minister issued a notice of confirmation, the Minister agreed, in correspondence with the appellant, to stay the publication of the NITR until the period for appealing the notice of confirmation had expired.
About a month later, the appellant filed a notice of appeal in the Federal Court of Appeal but did not apply for an order extending the period after which the Minister could publish the NITR. Less than three weeks later, the Minister published the NITR in the Canada Gazette, thereby revoking the appellant's charitable registration. As noted by Monaghan JA, a charity cannot appeal a revocation (as contrasted to the right to appeal an NITR to the Federal Court of Appeal).
The appellant filed an application for judicial review and for injunctive relief in the Federal Court regarding the Minister's decision to publish the NITR, and also filed an application for judicial review of the Minister's decision to publish the NITR in the Federal Court of Appeal.
At issue in this proceeding was whether the Federal Court had been correct in determining that it lacked jurisdiction to review the publication decision. The appellant submitted that, as the ITA appeal provisions only captured the decision to issue or confirm the issuance of the NITR and the decision to publish the NITR (triggering revocation of charitable registration) was a separate decision that the appellant could not appeal, therefore only the Federal Court had jurisdiction (pursuant to s. 18(1) of the Federal Courts Act) to judicially review the publication decision.
In rejecting this submission, Monaghan JA noted that ss. 172(3) and 180(1) provided that a registered charity could appeal the Minister’s decision to issue an NITR, or to confirm it following objection, to the Federal Court of Appeal, and that s. 180(2) provided that the Federal Court had no jurisdiction to entertain “any proceeding in respect of a decision of the Minister” from which any such appeal may be instituted.
She then found that, given the close connection between the NITR and its subsequent publication, an application for judicial review of the Minister’s decision to publish the NITR was a proceeding “in respect of” the Minister’s decision to issue or confirm the NITR. Consequently, she agreed that the Federal Court lacked jurisdiction to review the decision to publish the NITR.
She noted that she was not commenting on the separate application for judicial review by the Federal Court of Appeal of the Minister’s decision to publish.
Neal Armstrong. Summary of Jewish National Fund of Canada Inc. v. Canada (National Revenue), 2025 FCA 110 under s. 180(2).
Income Tax Severed Letters 4 June 2025
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA confirms that the mark-up in the charges for geophysical services by a connected corporation to an exploration company over its incurred costs would be excluded from CEE
BCO will be issuing flow-through shares to fund exploration work. A second company (ACO), which is wholly owned by the controlling shareholder of BCO, provides geophysical services to its customers, including BCO.
Would any portion of the payments made by BCO to ACO for ACO's services be considered exploration and development overhead expense (CEDOE) so that such portion would be excluded from Canadian exploration expense (CEE) pursuant to ITA s. 66(12.6)(b) and Reg. 1206(4.2) and, thus, could not be renounced by BCO to its flow-through share investors?
CRA noted that under para. (d) of the CEDOE definition in Reg. 1206(1), amounts paid by BCO to a person with whom it was connected under Reg. 1206(5)(a) (i.e., ACO) for the performance of a service, which otherwise would be CEE, will be CEDOE to the extent that the amount charged exceeds the costs incurred by such connected person in providing the service.
Thus, the amount of CEE that BCO would be entitled to renounce in respect of the amounts paid by it to ACO for ACO's services would be limited to the actual cost incurred by ACO in providing such services. Regarding whether certain non-insurable risks and liabilities (e.g., losses if the survey aircraft crashed) could be considered to be “costs incurred” for these purpose, CRA noted that the “Courts have held that a taxpayer will not be considered to have incurred an expense unless and until the taxpayer has an absolute and unconditional legal obligation to pay an amount” and indicated that It seemed unlikely that such amounts could so qualify.
Neal Armstrong. Summary of 9 August 2023 External T.I. 2023-0979431E5 under Reg. 1206(1) – CEDOE – para. (d).
CRA indicates that the opening UCC for used depreciable property of an acquired LLC for the first year of computing its FAPI was the lesser of UCC and FMV
A US LLC, which was formed in 2017 by a regarded US corporation, acquired and used appreciable assets in carrying on its active business in the US from 2017 and all subsequent years. All the membership interests in the LLC were acquired at arm's length by an affiliate of a Canadian resident corporation on January 1, 2024.
The earnings of the LLC were required under s. (a)(iii) of the definition of “earnings” in Reg. 5907(1) to be computed on Canadian principles and, pursuant to Reg. 5907(2.03), with the claiming of maximum deductions. Would the undepreciated capital cost (UCC) of the LLC's depreciable property be determined on January 1, 2024 by being reduced by notional CCA deductions for the prior years?
CRA indicated that for the purposes of computing the income of US LLC under Part I of the Act, and for the purposes of determining its earnings under Reg. 5907(1), the opening balance of UCC for 2024 would be the lesser of capital cost and fair market value.
Neal Armstrong. Summary of 28 May 2025 IFA Roundtable, Q.6 under Reg. 5907(2.03).
CRA provides a formula for prorating foreign tax between a FAPI and non-FAPI business for FAT purposes
If a foreign affiliate (FA) carries on a business in a foreign county and pays tax to that country on income which the ITA segregates into income from a business other than an active business and active business income, how will the determination of what portion of the foreign tax paid “may reasonably be regarded as applicable to” foreign accrual property income (FAPI) of FA in accordance with the foreign accrual tax (FAT) definition be made?
CRA indicated that it would consider it reasonable to compute FAT by multiplying the total amount of foreign tax paid to the foreign jurisdiction by the foreign affiliate for its taxation year by a fraction:
- the numerator of which is the net income of the foreign affiliate for the taxation year computed under the foreign tax laws from the activities that generate FAPI for Canadian income tax purposes (the “FAPI business”); and
- the denominator of which is the total net income of the foreign affiliate computed under the foreign tax law.
Thus, for the purposes of computing the numerator it is necessary to first identify the activities that would form part of FAPI business, and then the gross income under the foreign tax rules from that FAPI business is to be computed, with that amount then being reduced by the total amount of deductions that are allowed under the foreign tax law and claimed by the foreign affiliate in the taxation year that may reasonably be regarded as directly applicable only to the FAPI business; this amount should also be reduced by the prorated amount of deductions (again allowed under the foreign tax law and claimed by the foreign affiliate) that would not reasonably be regarded as applicable to either the FAPI business or any other income-generating activities, such as overhead or head office expenses.
If there were any tax credits that reduced the foreign tax liability of FA, the above formula might have to be modified or a case-by-case approach might be required.
Neal Armstrong. Summary of 28 May 2025 IFA Roundtable, Q.5 under s. 95(1) – FAT.
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in August and July of 2000. Their descriptors and links appear below.
These are additions to our set of 3,215 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 24 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA is now using s. 231.1 as its primary demand power, and is relegating s. 231.2 to special situations, e.g., information about unnamed persons
CRA is drafting a communique that will clarify that s. 231.1 is the primary information power used by CRA officials to request information, documents, access, and reasonable assistance; whereas the s. 231.2 power will be reserved for obtaining records of financial institutions, information on behalf of treaty partners, and information about unnamed persons.
The communique will clarify that CRA officials should explain in general terms, within the information-gathering correspondence or during meetings, the compliance issue and why the documentation and information sought may be relevant in determining the obligations and entitlements of a taxpayer.
The communique will also apply for purposes of the ETA, which has parallel provisions.
Neal Armstrong. Summary of 28 May 2025 IFA Roundtable, Q.4 under s. 231.1(1).
CRA illustrates an ordering rule for determining whether s. 15(2.17) applies to a cross-border notional cash pooling arrangement – and doubts that the s. 15(2.6) exception applies
CRA indicated that anticipated frequent and ongoing movements under a notional cash-pooling arrangement would likely be considered to form part of a series of loans, repayments, and other transactions for s. 15(2.6) purposes.
CRA then provided the following simple example illustrating the application of the back-to-back rules in ss. 15(2.16) to (2.19) to a notional cash-pooling arrangement involving Canco and two affiliated foreign companies in the pool (Forco1 and Forco2). The 2nd, 3rd and 4th columns show amounts advanced into the pool (if positive) or taken out of the pool (if negative) by Canco, Forco1 and Forco2, respectively, and the 5th column shows the net amount on deposit with the group bank.
|
Canco |
Forco1 |
Forco2 |
Balance |
||
|
1 Oct |
$0 |
$10 |
$(5) |
$5 |
Canco is not in the pool, so that nothing has yet happened. |
|
5 Oct |
$5 |
$10 |
$(5) |
$10 |
Canco deposits $5 into the pool. There is no deemed loan under s. 15(2.17) because, although Forco2 is $5 in overdraft, Forco1 notionally covers that overdraft. |
|
15 Oct |
$5 |
$10 |
$(15) |
$0 |
Forco2 withdraws $10, triggering a deemed loan under s. 15(2.17), because it is reasonable to conclude that the $15 overdraft from Forco2 is made possible by the $5 balance of Canco - i.e., Forco1's positive balance is insufficient to cover Forco2's overdraft. |
|
20 Oct |
$5 |
$15 |
$(15) |
$5 |
This $5 increase for Forco1 does not eliminate the deemed $5 loan of Canco to Forco2: no relevant change. |
|
25 Oct |
$0 |
$15 |
$(15) |
$0 |
Canco's $5 withdrawal results in a deemed repayment of the deemed Oct. 15 loan. However, this likely occurs as part of a series of transactions so that there might not be a refund of the withholding tax under s. 214(3)(a). |
|
26 Oct |
$10 |
$15 |
$(15) |
$10 |
Canco deposits $10. S. 15(2.17) does not apply, similarly to Oct. 5 (Forco1's positive balance notionally covers Forco2's overdraft). |
|
27 Oct |
$10 |
$10 |
$(15) |
$5 |
Forco1 withdraws $5. This triggers a $5 deemed loan from Canco, similar to Oct. 15. |
|
28 Oct |
$5 |
$10 |
$(10) |
$5 |
Forco2 pays off $5 and Canco withdraws $5: this triggers a repayment under s. 15(2.19), similar to Oct. 25. |
Given that the s. 15(2.6) exception is problematic, Canco may wish to make a PLOI election with its non-resident parent pursuant to s. 15(2.11). CRA will be announcing the details of a simplified PLOI election on its website.
Neal Armstrong. Summaries of 28 May 2025 IFA Roundtable, Q.3 under s. 15(2.17), s. 15(2.11) and s. 15(2.6).
GST/HST Severed Letters September-October 2024
CRA is expecting affected taxpayers to start registering for GMTA purposes in the late fall
CRA is expecting to implement a requirement for registration under the Global Minimum Tax Act in late 2025. There will be various options available for registering a GMT program account; for example, a business registration online portal for resident businesses and a non-resident registration web form on Canada.ca for non-resident businesses.
Neal Armstrong. Summary of 28 May 2025 IFA Roundtable, Q.2 under GMTA, s. 60(1).
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Neal H. Armstrong editor and contributor