News of Note
Luxembourg High Administrative Court indicates that a PE can ambulate within an office complex
Email this ContentA Luxembourg company (PSC) was unsuccessful in its arguments on appeal to the Luxembourg High Administrative Court that it acquired and held two companies through a permanent establishment (PE) in Malaysia. It was found not to be carrying on business at the alleged PE given that, inter alia, it had no employees and “a history of services rendered only on paper”.
The Court also noted that a PE generally required the presence of a distinct geographic location. The group owned all or part of three office towers in a complex in Malaysia, and PSC argued that the office space allocated to its Malaysian branch could change from one tower to another depending on operational needs – so that the three towers should be considered a single site. The Court responded:
Regarding the issue of the alleged branch's fixed location … the Court acknowledges that while it is entirely plausible for the allocation of an office to a branch within a complex consisting of three towers to vary over time, it remains that such an office should at all times be clearly identified.
However, this is manifestly not the case in this instance.
PSC’s appeal was dismissed.
Neal Armstrong. Summary of Cour Administrative, Case no. 50602C 17 June 2024 (Luxembourg High Administrative Court) under Treaties – Income Tax Conventions – Art. 5.
Uppal – Tax Court of Canada infers Ministerial acceptance of late HBP withdrawals because CRA only challenged them on another ground
The taxpayers, after purchasing a home in December 2020, withdrew from their RRSPs in reliance on the home buyers’ plan (HBP) rules in both 2021 and 2022. Whether the 2022 withdrawals were eligible amounts turned on the s. 146.01(2)(d) rule, which would have deemed the 2022 withdrawals to have been made at the end of 2021 (and, to therefore, be eligible amounts) if those withdrawals were made in January 2022 “or at such later time in the year as [was] acceptable to the Minister.”
In rejecting the Minister's position that s. 146.01(2)(d) did not apply on the basis that there were insufficient funds in their RRSPs on December 31, 2021 to fund the withdrawals, Sorensen J. stated that s. 146.01(2)(d) was a deeming rule that, therefore, was “unconstrained by reality, including whether there was a positive account balance at prior year-end”.
That left the question as to whether their withdrawals in 2022 (which occurred after January 2022) were "acceptable to the Minister." In imputing such acceptability, Sorensen J indicated that he could infer that the 2022 date of the second withdrawals was not a problem for the Minister, as no Ministerial objection had been stated in any of the materials properly put before him, nor was there any properly admissible evidence of “any purported exercise of Ministerial discretion” to find the 2022 withdrawal dates unacceptable.
Neal Armstrong. Summary of Uppal v. The King, 2025 TCC 103 under s. 146.01(2)(d).
CRA indicates that scholarships received by non-resident temporary workers for French language training would not be included in their taxable income earned in Canada
Non-resident temporary workers take French language courses offered by general Quebec training centres for free, but may receive French language scholarships to cover their living expenses.
CRA concluded that the non-residents are not required to include such scholarship amounts in computing their taxable income earned in Canada for the year since, having regard to the tests for such inclusion pursuant to ss.115(1)(a)(v), 115(2)(e)(ii) and 56(1)(n), the courses do not qualify as being at the post-secondary level (i.e., completion of a secondary education is not a prerequisite). However, those amounts must be included in their worldwide income for the purposes of the computation under s. 118.94 (allowing the deduction by non-residents of various personal credits), which essentially requires that substantially all of their worldwide income for the year be included in their taxable income earned in Canada for that year. The basic exemption of up to $500 provided in s. 56(3)(c) would be available.
Neal Armstrong. Summary of 1 May 2025 External T.I. 2024-1030911E5 F under s. 118.94.
CRA finds that card payment processing services paid by a merchant under an agreement with an ISO and credit card company were for exempt financial services
A merchant operating a convenience store entered into an agreement (the “Service Agreement”) with an independent sales organization (ISO) and an “acquirer” for the purpose of acquiring card payment processing services of the acquirer. The merchant also entered into an agreement (the "Device Agreement") with DeviceCo for the provision of point-of-sale mechanisms and/or devices, together with associated software, maintenance, and connectivity.
The CRA indicated that the monthly equipment rental fees paid by the merchant to DeviceCo were consideration for taxable supplies by DeviceCo. However, the fees paid by the merchant under the Service Agreement were regarded as consideration for the processing of credit and debit card payments within the payments network and, thus, as consideration for exempt supplies of financial services.
Neal Armstrong. Summary of 13 December 2024 GST/HST Ruling 247852 under ETA s. 123(1) – financial service – para. (i).
GST/HST Severed Letters December 2024
This afternoon's release of three severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their December 2024 release) is now available for your viewing.
Income Tax Severed Letters 30 July 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
An amalgamation of a purchaser corporation and subject corporation can cause the control test in s. 84.1(2.31)(f)(i) or 84.1(2.32)(g)(i) to cease to be met
Although s. 87(2)(j.6) deems the amalgamation of a purchaser corporation and subject corporation to be a continuation of each such predecessor for purposes of inter alia ss. 84.1(2.31)(f)(i) and 84.1(2.32)(g)(i), it does not provide a safe harbour for intergenerational transfers in all cases, as illustrated by the following example.
If a parent sells 51% of the shares of ParentCo to a corporation wholly owned by the parent's child (ChildCo) and 49% of the shares to a corporation wholly owned by an arm's length third party (ThirdCo), then if, in the months following such intergenerational transfer, there is an amalgamation of ChildCo, ThirdCo, and ParentCo, s. 84.1(2.31)(f)(i) and s. 84.1(2.32)(g)(i) will be met both before and after the amalgamation, having regard to the continuity rule in s. 87(2)(j.6), given that the child will control ChildCo before the amalgamation and will control Amalco thereafter.
However, if the parent instead transferred 50% of the ParentCo shares to ChildCo and 50% to ThirdCo, and within 36 months there was an amalgamation, with Amalco owned equally by the child and the third party, those tests would no longer be met because, following the amalgamation, the child did not control Amalco (although before the amalgamation the child controlled ChildCo).
Neal Armstrong. Summary of Patricia Houle and Vincent Dansereau, “Intergenerational Transfer of a Business: Is a Post-Sale Merger Problematic?” Canadian Tax Focus, Vol. 15, No. 3, August 2025, p. 1 under s. 84.1(2.32)(g)(i).
Non-resident individuals very well may be subject to AMT on their gains, in excess of the s. 116 withholding
Where a family member with high taxable income has lent money to a trust at the prescribed rate provided in Reg. 4301(c), under s. 127.52(1)(j) only 50% of this interest is deductible in computing the trust’s adjusted taxable income (ATI). The s. 104(6) deduction is only available for distributions of income computed under the ordinary rules and does not permit the distribution of the additional ATI.
A possible solution is for the trust to forgo claiming deductions under s. 20 and distribute the resulting increased income to its beneficiaries (provided they are both capital and income beneficiaries).
AMT applies to all individuals, with no exemptions for non-residents, so that a non-resident selling taxable Canadian property (TCP) often will be subject to AMT on the resulting capital gain (equaling 100% of the gain). Although the purchaser of the TCP may have withheld under s. 116, the non-resident nonetheless is required to file a Canadian tax return to report the capital gain, so that the application of AMT may give rise to a balance owing upon such T1 filing.
Neal Armstrong. Summaries of David Carolin, Nadia Rusak and Manu Kakkar, "AMT: Alternative Minimum Tax Should Be Renamed Additional Massive Tax," Tax for the Owner-Manager, Vol. 25, No. 3, July 2025, p. 8 under s. 127.52(1)(j) and s. 127.52(1)(d).
CRA issues a Folio on professional and other dues
CRA has published a new Folio on the s. 8(1)(i) deduction, which expands on comments that it made in Interpretation Bulletin IT-158R2. Comments made on the deduction under s. 8(1)(i)(i) for an amount paid as annual professional membership dues, the payment of which was necessary to maintain a professional status recognized by statute, include:
- Dues must be of a recurring nature in order to qualify as annual dues. Initiation or entrance fees, special assessments, examination fees, licence fees, costs to obtain continuing professional education credits, and dues paid by students before becoming members of a professional organization would not qualify as annual membership fees.
- A professional status refers to possessing advanced education or training and satisfying other conditions and requirements established by a professional organization.
- Montgomery clarified that the phrase “recognized by statute” should be afforded a broad interpretation, and that “recognized by statute” does not necessarily mean that a professional status was incorporated, created, or regulated by a particular statute.
- The employee's professional status does not necessarily have to be recognized by statute in the jurisdiction of the employment, e.g., an Alberta employee belonging to an association in Australia where this professional status of the employee is recognized by statute.
- Payment of dues will likely be considered necessary to maintain a professional status only where membership in the professional organization is mandatory in order to maintain professional status and the non-payment of the annual dues could adversely affect or cause the employee to lose their professional status.
- In some instances, a professional organization may require payment of annual dues that are in part passed on to a national association. In such cases, provided that membership in the provincial organization is necessary to maintain the employee's professional status, the entire amount of the annual dues paid will be considered necessary to maintain that professional status.
- Professional membership dues must reasonably relate to the employment income source, but it is not necessary that the payment of the annual dues be essential for the employee to hold the position; however, there must be a reasonable connection between the professional membership and the position, e.g., professional status as a chemical engineer at a chemicals company.
Neal Armstrong. Summaries of Income Tax Folio S2-F2-C1, Employee Professional Membership and Other Dues under s. 8(1)(i)(i), s. 8(1)(i)(iv), s. 8(1)(i)(vi), s. 8(1)(i)(vii) and s. 8(5).
We have translated 6 more CRA interpretations
We have translated a further 6 CRA interpretations released in May of 2000. Their descriptors and links appear below.
These are additions to our set of 3,268 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 25 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Receive News of Note
Receive free emails of each News of Note post
Editors
Neal H. Armstrong editor and contributor