The Joint Committee comments on the August 15 draft legislation

Comments of the Joint Committee on the August 15, 2025 draft legislation include:

• Regarding proposed s. 149(13), it is recommended that a de minimis test be introduced so that small nonprofit organizations are not required to file an annual information return.
• The exclusion in the definition of exempt interest financing expense for borrowings that are used to acquire purpose-built residential rentals should be extended to: land that can reasonably be considered to be necessary for the use and enjoyment of such property, and outlays or expenses incurred by the borrower that are included in computing the cost to the borrower of the purpose-built rental or related land.
• S. 85.1(4) excludes rollover treatment for a drop-down described in s. 85.1(3) where there is a “relevant disposition” as part of the same series of the rolled-down shares, property substituted therefor or of property deriving any portion of its FMV from such shares or property – but with a narrow exclusion (i.e., carve-out) for dispositions of shares of a Canadian-resident corporation. Detailed examples are provided to illustrate the proposition that this carve-out rule in s. 85.1(4)(a)(i) (and a similar rule in s. 87(8.3)(b)) should be expanded to include dispositions of property by a Canadian taxpayer (given inter alia that this generates tax to the Canadian system), and dispositions of some types of non-share property such as indebtedness also should not be problematic.
• An exception should also be included in s. 85.1(4)(a)(i)(B) for non-share consideration described in s. 85.1(3)(a), so that the transfer of such non-share consideration (or property that derives its value from such non-share consideration) would not affect the application of s. 85.1(3).
• S. 85.1(4)(a)(ii)(B) describes one of the “bad” transferees for purposes of what is a relevant disposition, namely, a non-resident who is not at arm’s length with the taxpayer throughout the series, but with a safe-harbour carve-out for a controlled foreign affiliate (CFA) of the taxpayer as described in s. 17. This carve-out is problematic because it requires that such CFA not deal at arm's length with the taxpayer throughout the series. For example, where Canco acquires a foreign corporation (CFA2), which thus would not be a CFA at the commencement of the series, and then contributes CFA2 to an existing CFA, CFA2 would not be a CFA of Canco prior to the acquisition of CFA2 for purposes of the above carve-out.
• Where there is a merger of CFAs of Canco, there is no continuity rule deeming the merged corporation to be a continuation of the predecessors. As a result, it could not be considered to be an s. 17 CFA for purposes of the portion of the series preceding such merger.

Neal Armstrong. Summaries of Joint Committee, “August 15, 2025 Legislative Proposals,” Submission of the Joint Committee dated 15 September 2025 s. 149(13), s. 18.2(1) – EIFE, – ATI – D(b), s. 18.2(20). s. 126(4.7), s. 85.1(4)(a)(ii) and s. 85.1(4)(a)(ii)(B).