News of Note
CRA indicates that “fully electric” automotive equipment can include an electric cable railway car
Email this ContentA taxable Canadian corporation would acquire a vehicle - that used electricity supplied to it by an attached tether cable to power its fully electric motors and hydraulic pumps – to offload raw materials and move them by rail for offloading at a processing plant.
CRA noted that s. (d)(iv) of the definition of “clean technology property” in s. 127.45(1) referred inter alia to “a non-road zero-emission vehicle described in Class 56” and that Class 56 included “automotive equipment (other than a motor vehicle) that is fully electric.” In finding that the vehicle could qualify as a “clean technology property” if the other conditions were satisfied, CRA stated:
[T]he fact that the Property runs on rails and that its electricity is supplied by a tethered cable would not, in our view, prevent the Property from being considered to be automotive equipment that is fully electric.
Neal Armstrong. Summary of 3 October 2025 External T.I. 2025-1075051E5 under s. 127.45(1) - clean technology property - (d)(iv).
Verreault – Quebec Court of Appeal finds that a single-person inventor’s proprietorship was a business eligible for investment tax credits
The taxpayer, who had been a science professor at a university from 1970 to 2020, in 2010 started a proprietorship (“RVI”) focused on scientific instrumentation and software design which, among other projects, included designing a new bearing system for go-karts.
RVI generated revenues of nil, $96, and $52,054 for his 2011, 2012, and 2013, taxation years, respectively. Those years were reassessed by the ARQ to deny investment tax credits on the basis that he was not carrying on a business. However, starting in 2017, RVI began generating more significant revenues and turned a profit.
In applying the two-part test in Stewart, Bich JCA found that there was no relevant personal element to his endeavour, stating:
[T]he mere fact that a person undertakes to commercially develop an activity stemming from a personal passion (whether it involves music – as in Bodanis –, computing, video games, or karting, as in this case) … does not, in itself, allow the conclusion that this activity has a recreational aspect. Indeed, many businesses originate from such a passion … which often sustains the entrepreneur's perseverance in the face of the uncertainties of the venture. …
In further finding that the taxpayer’s activity was carried out in a sufficiently commercial manner, Bich JCA stated:
[T]here is nothing surprising about the fact that experimental development activities, which are inherently risky, do not immediately produce marketable results. … The absence of immediate profitability is neither an indication (nor proof) of a lack of reasonable expectation of income or profit. …
The activities of a single person … not producing as much or as quickly as a team of several dozen or hundreds of people is not abnormal and cannot, in itself, cast doubt on the entrepreneurial or commercial spirit of the individual (regardless of their age) nor on the existence of their business (independently of their skills in administration or business development, which is also not a relevant factor).
His appeal was allowed.
Neal Armstrong. Summary of Verreault v. Agence du revenu du Québec, 2026 QCCA 90 under s. 3(a) – business.
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in November of 1999. Their descriptors and links appear below.
These are additions to our set of 3,471 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 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Touchette – Tax Court of Canada indicates that ITCs claimed on denied expenses were not income under s. 248(16) since the associated GST had not been expensed
Gagnon J confirmed, as to the majority of the expenses concerned, CRA assessments which denied the deduction by a corporation (“9134”) of expenses incurred by it on the basis that they were for the benefit of its shareholder (“Touchette”) and treated the amount of such expenses as a taxable shareholder benefit to Touchette.
CRA also assessed under s. 248(16) in respect of the input tax credits (“ITC”) that 9143 had claimed for the GST on such expenses, in light of such GST no longer being an (offsetting) deduction, so as to include such ITC amounts in 9134’s income. Gagnon J agreed that such ITCs received by 9134 fell within the scope of s. 248(16) as government assistance. However, he noted that, as s. 248(16) was not a charging provision, whether there was an income inclusion to 9134 turned on whether s. 12(1)(x) applied to it.
In this regard, Gagnon J stated that “paragraph 12(1)(x) can only apply if subparagraphs (v) to (ix) are met” (as to which he indicated that s. 12(1)(x)(vi) was most relevant). (With respect, this is backwards: s. 12(1)(x)(vi) is a provision which, if applicable, excludes the application of s. 12(1)(x) rather than being a provision that must be met in order for s. 12(1)(x) to apply.) He then found that the GST on the expenses had not been claimed as an expense (and instead had been netted against the ITC claims) and stated that “the absence of the GST claim as an expense prevents the application of subparagraph 12(1)(x)(vi),” so that there was no related income inclusion.
Gagnon J also reversed the application of s. 15(1.3) to Touchette (under which CRA had increased the taxable shareholder benefit to him by the amount of the GST on the expenses) without providing detailed reasons.
Neal Armstrong. Summaries of Touchette v. The King, 2025 CCI 195 under s. 248(16) and s. 15(1.3). See also Michael Lubetsky and Andrea Arbuthnot, Tax Court Rejects Grossing Up Shareholder Benefits With ITCs, 27 January 2026.
CRA rules that the transfer, via a revocable living trust, of the RRSP funds of a deceased non-resident to the RRSP of his non-resident widow, could be exempted from Part XIII tax
Prior to the death of the deceased, he and his wife had made RRSP contributions, then ceased to be Canadian residents. Upon his death, the taxpayer (his widow) became the sole trustee and beneficiary of a revocable living trust, which they had settled. By virtue of the death of the deceased, the taxpayer became the sole trustee and beneficiary of the trust, and the estate of the deceased was bequeathed to the trust.
Before effectively ruling that a direct transfer of the property in the deceased’s RRSPs to her RRSP could be exempted from Part XIII tax under ss. 212(1)(l)(i) and (ii), CRA noted that, provided that the s. 146(8.1) election was made, the transfers out of his RRSPs would be deemed to be refunds of premiums to her given that they were made indirectly under the deceased’s annuitant’s will, as a consequence of his death, and under the express terms of the trust. Furthermore, had she been a resident of Canada throughout the transfer year, a deduction under s. 60(l) would have been available, so that the conditions in ss. 212(1)(l)(i) and (ii) for exemption were met.
Neal Armstrong. Summary of 2024 Ruling 2022-0941881R3 under s. 212(1)(l).
CRA provides further background on its policy reversal re Reg. 105 withholding where a Canadian subcontractor
In providing further background on the change that 29 April 2024 External T.I. 2022-0943241E5 made to its position in 2008-0297161E5 that the reimbursement of an expense (including a subcontractor charge) would not be subject to Reg. 105 withholding, CRA stated:
In Weyerhaeuser, the conclusion of the Court was that no withholding was required on amounts paid to reimburse the non-resident contractor for meals, travel and other outlays of the same nature. The position in CRA document 2008-0297161E5 expanded the conclusion of the Court to payments to subcontractors. That CRA position was reversed in [2022-0943241E5].
The 2022 CRA document indicates that the CRA will administer Regulation 105 in a manner which is consistent with the conclusion of the Court. Out of pocket outlays for travel, meals and similar items are not part of the Regulation 105 base where the client has agreed to reimburse them. Otherwise, Regulation 105 applies to fees, commissions or other amounts paid for services rendered in Canada.
See also 2024-1038271C6.
Neal Armstrong. Summary of 19 November 2024 TEI Roundtable, 2024-1039461C6 under Reg. 105(1).
Income Tax Severed Letters 28 January 2026
This morning's release of seven severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Here are 2 examples of the operation of the s. 85.1(4) exclusions
Two illuminating examples are provided on the operation of the proposed expansion (contained in the August 15, 2025 draft legislation) of the exclusion in s. 85.1(4) for rollover treatment under s. 85.1(3).
Example 1
A non-resident corporation (“Foreign Parent”) wholly owns Canco, which in turn wholly owns two controlled foreign affiliates, FA1 and FA2.
Canco disposes of the shares of FA1, which have an accrued gain, to FA2 in exchange for shares of FA2. Subsequently, Canco disposes of all or a portion of its shares of FA2 to Foreign Parent in a transaction that is fully taxable for ITA purposes.
If it is determined that the initial and subsequent dispositions are part of the same series of transactions, the subsequent disposition of the FA2 shares by Canco to Foreign Parent should be considered a “relevant disposition” under proposed s. 85.1(4)(a)(i)(C) on the basis that the shares of FA2 would, at the time of disposition by Canco, derive a portion of their fair market value (FMV) from the shares of FA1.
Furthermore, Foreign Parent would be an acquirer described in proposed s. 85.1(4)(a)(ii)(B) because, during the testing period commencing with the disposition of the FA1 shares and ending immediately after the series of transactions, Foreign Parent is a non-resident person not dealing at arm's length with Canco and that is not a controlled foreign affiliate (CFA) of Canco described in s.17 (a “s. 17 CFA”).
Accordingly, the s. 85.1(3) rollover would be inapplicable to Canco’s disposition of its FA1 shares.
Example 2
Canco owns all the shares of FA1 (a CFA) and 50% of the only class of shares of a non-controlled foreign affiliate, FA2. The remaining 50% is owned by a non-resident of Canada who deals at arm's length with Canco.
Canco disposes of the shares of FA1, on which it has an accrued gain, to FA2 solely in exchange for additional shares of the same class of FA2.
Draft s. 85.1(4) denies the s. 85.1(3) rollover:
- First, because the disposition of the shares of FA1 would be considered a “relevant” disposition under proposed s. 85.1(4)(a)(i)(A) (whose definition includes a disposition of the rolled FA shares themselves).
- Second, that relevant disposition is made to an acquirer described in proposed s. 85.1(4)(a)(ii)(B) because: (i) FA2 is a non-resident person with whom Canco does not deal at arm's length at the time immediately after the disposition of the shares of FA1 to FA2; and (ii) FA2 is not a s.17 CFA of Canco at the time of the disposition of the FA1 shares (and instead, only became a s. 17 CFA of Canco immediately after that disposition).
Neal Armstrong. Summary of Bryan Leslie, “Proposed Amendments to Subsection 85.1(4),” International Tax Highlights, Vol. 4, No. 4, November 2025, p. 5 under s. 85.1(4).
Cineplex – Tax Court of Canada finds a payment to an affiliate to assume lease obligations, so as to permit a share sale of the payer, was currently deductible
A Canadian company with a loss-generating movie-theatre business (“Ventures”) was required to discontinue two of its theaters as a condition to the sale of its shares to Cineplex Inc. To accomplish this, Ventures agreed with its New Jersey affiliate (“AMCNJ”) to sell the assets relating to the two theatres to AMCNJ for a purchase price of $0.7 million, satisfied by the assumption of liabilities in that amount, and to make a payment (the “Payment”) to AMCNJ of $26.6 million in consideration for AMCNJ assuming the balance of its future obligations in respect of the two discontinued theatres, mostly the assumption of the remaining lease obligations.
In finding that the Payment was a currently deductible expense of Ventures, MacPhee J characterized the Payment as “a specific ‘commutation payment’ made to eliminate or reduce a future ongoing expense of a current nature for Ventures,” and quoted with approval the statement in Langille that:
As a general rule, there is no reason that business shutdown or termination expenses incurred post-closure of operations cease to be deductible business expenses in ordinary, commercial, and business-like circumstances.
Respecting the submission of the Crown that the Payment represented negative proceeds of disposition resulting from the sale of the two theaters, MacPhee J stated his view that “Parliament likely did not intend ‘proceeds of disposition’ to be negative in value.” Furthermore, the fact that the Payment had been made as a result of a share sale did not have the effect of converting it into a capital expenditure.
Neal Armstrong. Summary of Cineplex Inc. v. The King, 2026 TCC 15 under s. 18(1)(b) – capital expenditure v. expense - start-up and close-down expenditures.
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in December and November of 1999. Their descriptors and links appear below.
These are additions to our set of 3,465 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 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Neal H. Armstrong editor and contributor