9 October 2025 APFF Financial Planning Roundtable

This page contains our translation of the questions posed at the 9 October 2025 APFF Federal Financial Planning Roundtable held at the Manoir Richelieu in Charlevoix, Quebec together with our translations of the full text of the Income Tax Ruling Directorate’s provisional written answers (which were orally presented by Catherine Ayotte and Marie-Claude Routhier, with participation also of Robert Duong of the Department of Finance). The 9 October 2025 (regular) Roundtable is provided on a separate page. The written answers of CRA contain a detailed disclaimer that they are provisional.

Q.1 Tax payable on prohibited or non-qualified investments and tax refunds

When a registered plan acquires a non-qualified or prohibited investment, or if an investment it holds becomes one, the controlling individual of the plan is subject to a tax, pursuant to section 207.04 of the Income Tax Act,[1] equal to 50% of the fair market value ("FMV") of the investment at the time the investment is acquired or becomes non-qualified or prohibited. That 50% tax may be refundable if the non-qualified or prohibited investment is withdrawn from the plan (the investment is sold or distributed in kind) or becomes a qualified investment again before the end of the calendar year following the year in which the tax is applicable (or at such later time as the Minister of National Revenue considers reasonable). No refund of that 50% tax is possible if it is reasonable to consider that the controlling individual knew or should have known that an investment was or would become a prohibited or non-qualified investment.

Furthermore, when the payment and refund of the 50% tax occur in the same calendar year, the CRA allows a set-off. In that regard, here is an excerpt from a note found in Form RC339:[2] .

"Note

If the 50% tax on non-qualified or prohibited investments, and the entitlement to the refund of that tax, arose in the same calendar year then a remittance of the tax is not required. For example, no remittance of tax would be required if an RDSP trust acquired and disposed of a non-qualified investment in the same calendar year.”

For example, an investment becomes non-qualified on October 23, 2024. The FMV at that time is $20,000. If the investment is withdrawn or becomes qualified again before the end of 2024, no payment of the 50% tax will be required, provided all applicable conditions for obtaining a refund of that tax are otherwise satisfied.

In reality, when an investment becomes non-qualified or prohibited at the end of the year, it will often be withdrawn at the beginning of the following year. In fact, it may take several months for the issuer or promoter of the registered plan to inform the controlling individual and for the latter to make the correction. Thus, in the above example, the correction will generally be made in January or February 2025.

Question for CRA

In order to reduce the administrative burden for both the taxpayer and the CRA, would it be possible to extend the period stated in the note to Form RC339 so that the 50% tax would not have to be paid if the entitlement to the refund arose before the deadline for filing the prescribed form, i.e. June 30 of the year following the end of the calendar year? If not, could you explain the issues or reasons?

CRA Response

When a trust governed by a registered plan[3] acquires [4] at any time in the year, property that is a prohibited investment [5] or a non-qualified investment,[6] subsections 207.04(1) and 207.04(2) provide that the controlling individual[7] is liable to pay a tax equal to 50% of the FMV of the property determined at the time the property was acquired or became a non-qualified or prohibited investment.

Under subsection 207.07(1), a person who is liable for the 50% tax payable on prohibited or non-qualified investments under section 207.04 must, before July of the following calendar year, file a return for the year in one of the prescribed forms, either Form RC339, Form RC728[8] [9] containing prescribed information and pay any taxes owing, after deducting the allowable refund to which it is entitled for the year.

The term "allowable refund" is defined in subsection 207.01(1) and means the total of all amounts each of which is a refund, for the year, to which the person is entitled under subsection 207.04(4) as a result of the disposition of a non-qualified investment or a prohibited investment in that calendar year.

Under subsection 207.04(4), for the controlling individual to be entitled to the 50% tax refund provided for in subsection 207.04(1), the registered plan must have disposed of the property before the end of the calendar year following the calendar year in which the tax arose (or any later time that the Minister considers reasonable in the circumstances). However, this refund is not available if it is reasonable to consider that the controlling individual knew or should have known, at the time the property was acquired by the registered plan, that the property was or would become a non-qualified or prohibited investment.

The above prescribed forms provide instructions for applying for a refund of the 50% tax, where applicable. Each of the forms includes a note to the effect that payment of the 50% tax may not be required when the obligation to pay the 50% tax and the entitlement to a refund of that tax arose in the same calendar year. This is consistent with the application of subsection 207.07(1). No Part XI.01 tax will be payable where the amount by which the tax liability for the year exceeds the amount of the allowable refund for the year is nil.

Where the obligation to pay the 50% tax and the entitlement to a refund of that tax do not arise in the same calendar year, subsection 207.07(1) requires payment of the tax, even if the entitlement to a refund arises before the deadline for filing the prescribed form, i.e., June 30 of the year following the end of the calendar year. No administrative relief is contemplated in such a situation where the conditions for the application of subsection 207.07(1) would not be satisfied.

Where entitlement to a refund of the 50% tax arises in the calendar year following the year in which the tax arose, subsection 207.07(2) permits a refund of the allowable amount of the tax provided for in subsection 207.04(1) for a calendar year, to the extent that the refund has not been applied to reduce the 50% tax payable for the year. Paragraph 207.07(2)(b) provides that the Minister shall refund the amount after sending the notice of assessment if the person applies for the refund within three years after sending the original notice of assessment for the year.

Q.2 Requirement to file a T5 slip

In Technical Interpretation 2010-0371931E5,[10] the CRA discusses the requirement to file an information return, i.e. a T5 slip,[11] with respect to amounts of interest paid or deemed to have accrued on a bond from which certain coupons have been detached. In particular, CRA states: [TaxInterpretations translation]

"...] the obligation to file T5 slips is not limited to interest that is paid.

The issuer of debt obligations from which a portion of the coupons have been detached can be required to file T5 slips by virtue of I.T.R. subsection 201(4) in respect of amounts required to be included in computing the income of taxpayers by virtue of subsection 12(4). Subsection 12(4) applies in respect of individuals and trusts (other than trusts of which a corporation or partnership is a beneficiary).

Question to CRA

Is this CRA position still valid?

CRA Response

We are of the view that the comments in Technical Interpretation 2010-0371931E5 still represent the CRA's position to the extent that the obligation on which interest is paid, or deemed to have accrued, qualifies as a fully registered bond or debenture It should be noted that Technical Interpretation 2010-0371931E5 was primarily intended to address the issue raised by the requester that double taxation could arise in the circumstances described in the question posed.

Subparagraph 201(1)(b)(i) of the Income Tax Regulations[12] provides that any person who makes a payment to a resident of Canada as or on account of interest (other than the portion of the interest to which any of subsections 201(4) to (4.2) of the Regulations applies on a fully registered bond must complete a T5 slip. Pursuant to with subsection 201(4) of the Regulations, a person or partnership that is indebted in a calendar year under a debt obligation in respect of which subsection 12(4) of the Act and paragraph 201(1)(b) of the Regulations apply with respect to a taxpayer must also complete a T5 slip in respect of the amount of interest that would, if the year were a taxation year of the taxpayer, be included as interest in respect of the debt obligation in computing the taxpayer’s income for the year.

Pursuant to subsection 201(2) of the Regulations, the nominee or agent of a person resident in Canada is required to complete a T5 slip when receiving a payment to which subsection 201(1) of the Regulations applies, including a payment of interest on a fully registered bond or debenture. In addition, a nominee or agent of a taxpayer resident in Canada who holds an interest in a debt obligation referred to in paragraph 201(1)(b) of the Regulations, including a fully registered bond or debenture, and to which subsection 12(4) of the Act applies, is required to complete a T5 slip pursuant to subsection 201(4.2) of the Regulations in respect of the amount that would otherwise be included as interest in computing the taxpayer's income for the year.

Q.3 Interest deductibility and the general anti-avoidance rule

The general anti-avoidance rule ("GAAR") was modified by Bill C-59, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 21, 2023 and certain provisions of the budget tabled in Parliament on March 28, 2023, 1st Session, 44th Parliament, 2024 (Can.), Royal Assent received June 20, 2024]. The introduction of subsection 245(4.1) of the Act, among others, to deal with a transaction or series of transactions that lack substantial economic substance, is creating a great deal of uncertainty for practitioners and taxpayers alike, even with respect to transactions that, until now, have been recognized as part of legitimate tax planning.

The introduction of subsection 245(4.1) of the Act, which deals with transactions or series of transactions that lack substantial economic substance, has created a great deal of uncertainty among practitioners and taxpayers, even with respect to transactions that, until now, were recognized as part of legitimate tax planning.

In Income Tax Folio S3-F6-C1, [14] the CRA states, in paragraph 1.33, that a taxpayer "may restructure borrowings and the ownership of assets to meet the direct use test” and gives the following example:

“Ms. A owns 1,000 co-ownership interests of X Corp., a corporation listed on the TSX. Ms. A also owns a personal use condominium that was financed with borrowed money. At this point, the direct use of the borrowed money was to acquire the condominium. Ms. A may choose to sell the 1,000 co-ownership interests of X Corp., use the proceeds from the sale of these co-ownership interests for any purpose, including paying down the borrowed money used to acquire the condominium, and subsequently obtain additional borrowed money to acquire another 1,000 co-ownership interests of X Corp. At this point, the additional borrowed money is directly used to acquire 1,000 co-ownership interests of X Corp.”

Question to CRA

Can the CRA confirm that GAAR would not apply to this series of transactions?

CRA Response

We are of the view that the series of transactions, as described in paragraph 1.33 of Income Tax Folio S3-F6-C1, would not trigger the application of the GAAR.

It should be remembered, however, that the application of GAAR is based on an analysis of all the facts relating to a particular situation. All the facts of a series of transactions must be examined and may influence the application of the GAAR. Consequently, our answer might be different if the series of transactions described in paragraph 1.33 of Income Tax Folio S3-F6-C1 included other transactions.

Q.4 Direct transfer to an RRSP within the first 60 days of the year and Schedule 7

At a meeting of the APFF Liaison Committee with CRA held on June 6, 2024, CRA confirmed that RRSP contributions made within the first 60 days of a calendar year must be reported on Schedule 7[15] of the previous calendar year, even if they were not deducted in calculating income for the previous taxation year. At the meeting, the CRA also clarified that a taxpayer who forgets to indicate the contributions made in the first 60 days of a year on Schedule 7 of their T1 [16] income tax and benefit return of the previous taxation year will have to amend that T1 Return.

The Income Tax Act provides a mechanism for certain transfers from registered plans that requires both inclusion and deduction in computing income. That is the case, for example, for transfers from a RRIF to an RRSP of the same annuitant. The annuitant will have to include a RRIF benefit on the annuitant’s T1 return, and deduct the RRSP contribution equivalent to the amount of the transfer.

When a direct transfer from a RRIF to an RRSP is made in the first 60 days of a year, the taxpayer will receive a T4RIF slip [17] for that year (e.g. 2025) and an RRSP contribution receipt with a reference to the first 60 days of the year (2025). In that situation, the RRSP contribution will be added back on Schedule 7 in the previous taxation year (2024), but will not be deducted in computing income until the taxation year of the transfer (2025).

Questions to CRA

(a) In this particular situation where a direct transfer from a RRIF to an RRSP is made within the first 60 days of a year, should the RRSP contribution be reported on Schedule 7 of the previous taxation year (2024) (as for regular contributions) or on Schedule 7 of the current taxation year (the taxation year of the transfer (2025))?

(b) If the RRSP contribution is to be reported on Schedule 7 of the current taxation year (the transfer taxation year (2025)), should the issuer be asked for a separate RRSP receipt from the other regular contributions made in the first 60 days of the year?

CRA Response to Question 4(a)

The amount in excess of the minimum amount (the "Excess Amount")[18] that the taxpayer has withdrawn out of or under a RRIF under which the taxpayer is the annuitant and that is added back in computing the taxpayer's income for the year by virtue of subsection 146.3(5) may be deducted in computing the taxpayer's income for a taxation year, under clause 60(l)(v)(D, where such amount is paid by direct transfer from the issuer of a RRIF to an RRSP under which the taxpayer is the annuitant.

The annuitant may use Form T2030 [19] to request that the issuer of the annuitant’s RRIF make a direct transfer of an Excess Amount to the annuitant’s RRSP, as permitted by subparagraph 60(l)(v). Where this direct transfer is made within the first 60 days of the year, the taxpayer must file a Schedule 7 for two consecutive taxation years, that is, for the taxation year in which the direct transfer to the RRSP is made and for the preceding taxation year.

In your example, a direct transfer from a RRIF to an RRSP is made in accordance with subparagraph 60(l)(v). in the first 60 days of 2025. We have assumed that no further RRSP contributions are made in either 2024 or 2025. In such a case, the taxpayer must include the RRIF benefit in income for the 2025 taxation year, and may also deduct, for that same taxation year, the amount that was contributed by direct transfer to the RRSP, provided that amount is reported on Schedule 7 for the 2024 taxation year.

A T4RIF slip is then issued to the annuitant by the RRIF issuer for the 2025 taxation year, including the minimum amount for the year and the amount of the direct transfer from the RRIF. In addition, a receipt is issued by the RRSP issuer for the 2024 taxation year for the amount contributed to the taxpayer's RRSP within 60 days of year-end.

In summary, for the 2024 taxation year, the taxpayer must complete Schedule 7 of the individual’s T1 Return as follows:

1. The taxpayer must include the amount contributed to the RRSP within 60 days of the 2024 year-end by completing line 3 of Part A [20] and line 24500.

2. Line 24640 of Part C [21] must be blank and the amount on line 20 must be nil. This ensures that the taxpayer will not deduct the amount contributed to the RRSP in computing income for the 2024 taxation year.

3. The taxpayer must complete Part D [22] so that this amount can be deducted on the taxpayer’s T1 Return for the 2025 taxation year.

For the 2025 taxation year:

1. For the RRIF benefit, the taxpayer must include the amount from Box 16 of the T4RIF slip issued by the issuer on line 11500 of the individual’s T1 Return.

2. The taxpayer must also complete Schedule 7 of the individual’s T1 Return as follows:

a. Line 1 of Part A must include the amount of the taxpayer's unused contributions. This amount is shown on line 23 of Part D of Schedule 7 for the 2024 taxation year.

b. The amount of the direct transfer to the RRSP in 2025 must be reported on line 24640 and on line 15 of Part C.

c. The amount reported on line 20 of Part C in connection with the direct transfer should be reported on line 20800 of the T1 Return.

CRA Response to Question 4(b)

As stated in the answer to Question 4(a), when a direct transfer from a RRIF to an RRSP is made under subparagraph 60(l)(v) within the first 60 days of the year, the taxpayer must file a Schedule 7 for two consecutive taxation years, not just for the taxation year in which the amount is paid into the taxpayer's RRSP.

Furthermore, although there is no prescribed form for the preparation of an RRSP receipt, the receipt issued by the issuer for a direct transfer from a RRIF to an RRSP must specify that the amount paid to the RRSP is made pursuant to subparagraph 60(l)(v). This clarification must be indicated on the receipt issued by the issuer, regardless of the time of year when the amount is paid into the RRSP, as this makes it possible to distinguish between an amount paid under subparagraph 60(l)(v) and an amount that is not. [23] .

Q.5. Income subject to Tax on Split Income

The Tax on Split Income tax ("TOSI") applies to certain types of income received by a child under age 18 at the end of the year, and to amounts received from a related business by adult individuals. The individual to whom the TOSI applies must complete Form T1206 [24] and pay the resulting special tax. The special tax is included in computing the individual’s federal and provincial or territorial taxes.

Question to CRA

Does the payer (corporation, trust, etc.) of income subject to TOSI have to issue a prescribed slip to the "specified individual", as that term is defined in subsection 120.4(1)? Or does the payer have to add a special note on the tax slips (T5, T3, etc.) to that effect?

CRA Response

Generally, the responsibility for determining whether an amount constitutes "split income" or qualifies as an "excluded amount" (as those terms are defined in subsection 120.4(1)) rests with the specified individual. The Income Tax Act does not set out any specific requirements for the payer corporation.

With respect to amounts designated by a trust, Guide T4013[25] provides that when a trust allocates income to a beneficiary that may be subject to TOSI, an additional statement indicating the beneficiary's co-ownership interest of the income and the type of income must be attached to the T3 slip.[26] . The beneficiary should also be advised in writing that the beneficiary can be required to file Form T1206. This should provide the beneficiary with the information necessary to determine whether all or part of the amount allocated to the beneficiary is subject to TOSI.

Q.6 Application of subsection 12(12) of the Income Tax Act to a loss

Subsections 12(12), 12(13) and 12(14) provide rules that deem the gain realized on the disposition of a flipped property to be fully taxable as business income. However, if a business loss were incurred on the disposition of a flipped property, it would be deemed to be nil.

Subsection 12(13) defines "flipped property" as a property (other than inventory that is:

(a) prior to its disposition, a housing unit (or a right to acquire a housing unit) located in Canada;

(b) owned or, in the case of a right to acquire, held, by the taxpayer for less than 365 consecutive days prior to its disposition, other than a disposition that can reasonably be considered to occur due to, or in anticipation of, one or more of the events set out in subparagraphs 12(13)(b)(i) to 12(13)(b)(ix).

Questions to CRA

In a situation where a taxpayer disposes of an immovable that the taxpayer has held for less than 365 days, but realizes a loss, can the CRA confirm the following?

(a) If the taxpayer held the immovable as capital property, the capital loss would remain available and subsection 12(14) would not apply in those circumstances, subject to the superficial loss and deemed loss rules.

(b) If the taxpayer held the immovable in inventory, the business loss realized on disposition would remain deductible. Consider the following example: Daniel buys a land lot. His intention is to build a single-family home on it and resell it immediately, once construction is complete. The objective is clearly to make a profit (business income). Within a year of construction, a factory moves in across the street from the building, lowering the value so that when Daniel sells, he sustains a loss.

CRA Response to Question 6(a)

Subsection 12(14) provides that a taxpayer’s loss from a business in respect of a flipped property is deemed to be nil. Consequently, in a situation where a taxpayer realizes a capital loss on the disposition of a capital property, that subsection would not apply.

Furthermore, subsection 12(12), which could have the effect of changing the nature of the property, would not apply to the scenario described, since one of its conditions of application requires that there be a gain on the disposition, which is not the case here. Consequently, subject to Income Tax Act limitations such as the superficial loss and deemed loss rules, the capital loss will remain available to the taxpayer.

CRA Response to Question 6(b)

In the situation where the taxpayer realizes a business loss on the disposition of an "inventory" property, as that term is defined in subsection 248(1), the loss will not be deemed to be nil by virtue of subsection 12(14). Indeed, one of the conditions for that subsection to apply is that a business loss be realized on the disposition of a flipped property. Subsection 12(13) defines "flipped property" and specifically excludes inventory. Consequently, in this situation, the property will not qualify as a flipped property, and subsection 12(14) will not apply.

Q.7. Partial sale and flipped property

Particular Situation

Mr. A and Mr. B (two friends) were equal co-owners of a cottage located in Quebec. The cottage was a single-unit property. Each co-owner’s interest in the cottage was capital property.

The adjusted cost base ("ACB") of each co-owner was $100,000 (the purchase cost of the cottage in 2019 was $200,000).

In 2025, Mr. B sold his interest in the cottage to Mr. A for a sale price of $150,000 (the FMV of the cottage at that time was $300,000).

Mr. A became the sole owner of the cottage:

• 50% acquired in 2019 (ACB of $100,000)
• 50% acquired in 2025 (ACB of $150,000)

Less than 12 months after that purchase, Mr. A sold a 50% co-ownership interest in the cottage to Mr. C (another friend) for a price equal to 50% of the cottage's FMV at that time (i.e., for a sale price of $175,000, the cottage having an FMV of $350,000).

Since Mr. A has held a 50% co-ownership interest in the cottage for less than 365 consecutive days prior to the disposition of a co-ownership interest in the cottage to Mr. C, we think that the rules set out in subsections 12(12) to 12(14) on flipped property could apply if all other conditions are satisfied. In this case, the possible scenarios are as follows:

(a) Mr. A owned a single property (the cottage), with a total ACB of $250,000. When he sold a 50% co-ownership interest in the cottage to Mr. C (whose ACB was $125,000), Mr. A realized a profit of $50,000 ($175,000 - $125,000):

• since half of the 50% co-ownership interest sold to Mr. C was acquired less than 12 months before the sale to Mr. C, 50% of the $50,000 profit was business income of $25,000 and the other 50% of the profit was a capital gain of $25,000.

(b) Mr. A owned two identical properties (two undivided 50% co-ownership interests), each with an ACB of $125,000 (($100,000 + $150,000) / 2). When he sold his 50% co-ownership interest in the cottage to Mr. C (with an ACB of $125,000), Mr. A realized a profit of $50,000 ($175,000 - $125,000):

• either Mr. A sold the 50% interest he acquired in 2019 (first-in, first-out ("FIFO") method). Since that interest was sold more than 12 months after its purchase, the $50,000 profit was a capital gain ($175,000 - $125,000).

• or Mr. A sold the 50% interest he acquired in 2025 (last-in, first-out ("LIFO") method). Since that co-ownership interest was sold less than 12 months after purchase, the $50,000 profit is business income ($175,000 - $125,000).

(c) Mr. A owned two totally distinct properties, i.e. a 50% co-ownership interest with an ACB of $100,000 and another 50% co-ownership interest with an ACB of $150,000:

• Mr. A sold the 50% co-ownership interest he acquired in 2019 (FIFO). Since that co-ownership interest was sold more than 12 months after its purchase, the $75,000 profit was a capital gain ($175,000 - $100,000).

• or Mr. A sold the 50% co-ownership interest he acquired in 2025 (LIFO). Since that co-ownership interest was sold less than 12 months after its purchase, the $25,000 profit was business income ($175,000 - $150,000).

In our opinion, Scenario (a) is the correct tax treatment.

Question to CRA

Can the CRA confirm that the tax treatment of the particular situation is that described in scenario (a)?

CRA Response

Generally, the rules set out in subsection 12(12) on flipped property apply when a taxpayer realizes a gain on the disposition of "flipped property". The term "flipped property" is defined in subsection 12(13) and essentially refers to property that is a housing unit located in Canada (or a right to acquire such a housing unit) and owned or, in the case of a right to acquire, held, by the taxpayer for less than 365 consecutive days prior to its disposition, other than a disposition that can reasonably be considered to occur due to, or in anticipation of, one of the exemptions provided for in paragraph 12(13)(b).

In the particular situation, in order to determine whether or not the property satisfies the parameters of the definition of "flipped property", as set out in the preceding paragraph, we have assumed that the disposition of the co-ownership interest of the cottage to Mr. C did not occur because of or in contemplation of one of the exemptions provided for in paragraph 12(13)(b).

The term "housing unit" is not defined in the Income Tax Act. We must therefore rely on the ordinary meaning of that term and take into account the overall context of the text in which it is used, so that the interpretation adopted is in harmony with the spirit of the Income Tax Act and the intent of Parliament.

Thus, for the purposes of the application of the flipped property rules, CRA is of the view that a property that is, prior to its disposition, a housing unit under subparagraph 12(13)(a)(i) also includes a co-ownership interest in that property.

Consequently, in the particular situation, the principal issue is to determine whether Mr. A held a property that was a housing unit for less than 365 consecutive days before disposing of a co-ownership interest in the cottage to Mr. C.

In the particular situation, since Mr. A held a co-ownership interest in the cottage since 2019, the CRA is of the view that Mr. A has held a property that was a housing unit under subparagraph 12(13)(a)(i) for more than 365 consecutive days prior to the disposition of a co-ownership interest of the cottage to Mr. C for the purposes of subsection 12(13). Thus, the flipped property rules in subsections 12(12) to 12(14) did not apply to Mr. A upon the sale of a co-ownership interest in the cottage to Mr. C.

In conclusion, as stated in Scenario (a), the CRA agrees that Mr. A owns a single property (the cottage), with a total ACB of $250,000. However, since the flipped property rules in subsections 12(12) to 12(14) do not apply, and since Mr. A's co-ownership interest of the cottage is capital property, Mr. A must include the entire $50,000 profit realized on the sale of his co-ownership interest of the cottage to Mr. C as a capital gain in computing his income.

Q.8. Flipped property and date of disposition

On April 1, 2025, an individual acquired a residence that was a housing unit from an unrelated third party. The residence was not inventory of the individual. On July 1, 2025, he put the residence up for sale. None of the "life events" exceptions applied at the time the residence was put up for sale.

An offer to purchase the residence was made on December 1, 2025, but the transfer of ownership and the buyer's taking of possession were set for April 2, 2026, 366 days after the acquisition of the residence. In the meantime, a lease for temporary occupancy of the residence was entered into with the purchaser.

Questions for CRA

(a) Can the CRA confirm that subsection 12(12) will not apply on the sale of the residence?

(b) Would the answer be the same if the individual had acquired the residence from a trust of which the individual was the beneficiary, and had regularly lived in the residence since it was acquired by the trust more than five years ago?

CRA Response to Question 8(a)

Generally, the subsection 12(12) flipped property rules apply when a taxpayer realizes a gain on the disposition of "flipped property". The term "flipped property" is defined in subsection 12(13) and essentially refers to a housing unit (or the right to acquire such a housing unit) located in Canada, which is owned or held by the taxpayer for less than 365 consecutive days prior to its disposition, other than a disposition that can reasonably be considered to occur due to, or in anticipation of, one or more of the exemptions provided by paragraph 12(13)(b).

For the purposes of subsection 12(12), we have assumed that the residence described above would be a "flipped property" if it had been held by the taxpayer for less than 365 consecutive days prior to its disposition. Consequently, in this situation, the main issue is to determine the date of disposition of the residence. If that date is before the 365^th day following its acquisition, the residence will satisfy the parameters of the definition of "flipped property" and, if so, the rules set out in subsection 12(12) will apply.

However, such a determination cannot be made in a hypothetical context. Indeed, determining the date of disposition of real estate such as a residence, while seemingly straightforward, cannot be resolved without a thorough examination of the facts and particulars of each situation, including the agreements (written or verbal) between the parties and the applicable private law. In other words, in the situation described, this would mean examining, in addition to the particular circumstances surrounding the sale, the legal effects and interaction between the first offer to purchase providing for a deferred taking of possession on the 366^th day of the acquisition of the residence and the lease that allows the buyer to occupy the residence on the date the offer to purchase is concluded.

That said, in the context of such a review, the CRA has already indicated its agreement with the position taken by the Supreme Court of Canada in Shell Canada Ltd. v. Canada,[27] that, in the absence of a sham, determining whether a contract between two parties is a lease or a contract of sale is a function of the legal relationships created by the terms of the agreements rather than an appreciation of the underlying economic realities.

In addition, it is appropriate to add that, if the date of disposition of the residence occurred 366 days after the acquisition of the residence, it would not qualify as "flipped property". If that were the case, it would be necessary to determine whether such a disposition would give rise to business income or a capital gain, which can only be done following a careful examination of certain criteria that have been repeatedly recognized by case law. In this regard, Interpretation Bulletin IT-459[29] set out the principal criteria considered by the courts in determining whether the sale of a property gives rise to a capital gain or business income, and the CRA's comments thereon.

CRA Response to Question 8(b)

The answer to Question (b) is the same as that given in response to Question (a).

Q.9 Flipped property rule and short-term rental

Background

In recent years, various tax measures have been put in place to make housing more affordable and to encourage more Canadians to become homeowners. Some of those measures are ultimately aimed at discouraging various practices that can have an impact on rising real estate prices.

For example, the flipped property rules in subsection 12(12), applicable to dispositions after 2022, provides a deeming rule that a gain on the disposition of certain property is fully taxable income. Another of those measures, set out in section 67.7 and added in 2024, concerns the limitation of expenses relating to income earned from a so-called non-compliant short-term rental. Those two provisions of the Income Tax Act affect the disposition or rental of certain residential properties. More specifically, the flipped property rules in subsection 12(12) apply to "flipped property", an expression defined in subsection 12(13) and referring to property that is, among other things, a "housing unit".

However, the expense limitation rules for short-term rentals in section 67.7 apply to property that qualifies as "residential property".

Questions for CRA

Could the CRA clarify:

(a) What constitutes a "property [...] that is [...] a housing unit" for the purposes of the definition of "flipped property", as set out in subsection 12(13)?

(b) What constitutes "residential property" for the purposes of section 67.7? Specifically, does a bedroom or section of a residence (e.g., basement), often referred to as a studio or bachelor, fall within the definition of "residential property" in subsection 67.7(2)?

CRA Response to Question 9(a)

The term "housing unit" is not defined in the Income Tax Act. Consequently, in the absence of a definition that gives that term a specific technical meaning for the purposes of the definition of "flipped property" in subsection 12(13), we must rely on its ordinary meaning, which includes its dictionary meaning. A synthesis of the definitions given in various dictionaries leads us to conclude that a housing unit is normally represented by premises or a set of premises, occupied by a person or a group of persons, and which includes a certain number of features such as a kitchen, a bathroom, etc. However, for the purposes of the dictionary definition of "flipped property", the term "dwelling" is not used. However, for the purposes of the definition of "flipped property", the other terms used by the legislator, i.e. "property [...] that is [...] a housing unit", restrict the scope of the measure to a property that is a single housing unit. Thus, for the purposes of the flipped property rules, "flipped property", as defined in subparagraph 12(13)(a)(i), refers only to property that includes a single housing unit. The question of whether a property includes one or more housing units for the purposes of the definition of "flipped property" is one that can only be answered after an analysis of all the relevant facts and circumstances. Furthermore, although subsection 12(12) does not apply to the disposition of a property that is not a flipped property, it remains essential to determine whether such a disposition gives rise to income from a business or a capital gain, which can only be done following a careful examination of certain criteria that have been repeatedly recognized in the jurisprudence. To this end, Interpretation Bulletin IT-459 [30] and paragraphs 3 to 6 of Interpretation Bulletin IT-218R [31] set out the principal criteria considered by the courts in determining whether the sale of a property gives rise to a capital gain or business income, as well as the CRA's comments on them.

CRA Response to Question 9(b)

Essentially, the purpose of subsection 67.7(2) is to disallow rental expenses[32] in computing income related to a “non-compliant short-term rental,” that is, when renting residential property located in a province or municipality that does not permit short-term rentals (less than 90 consecutive days) or that does not meet all provincial or municipal registration, licensing, and permit requirements.

Pursuant to subsection 67.7(1), "residential property" means all or any part of a house, apartment, condominium unit, cottage, mobile home, trailer, houseboat or other property, located in Canada, the use of which is permitted for residential purposes under applicable law of the province or municipality in which the property is situated. In light of that definition, the CRA is of the view that a room or basement constitutes "residential property" within the meaning of the definition of that term in subsection 67.7(1).

Q.10. Old Age Security pension benefit received in a previous taxation year that must be repaid

Where a taxpayer is required to retroactively repay Old Age Security ("OAS") pension benefits that were otherwise taxed in previous taxation years, an amount will be shown either in a letter or in Box 20 of the T4A(OAS) slip [33] . In that case, a deduction is possible on line 23200 of the taxpayer’s T1 Return in the year of repayment.

Question to CRA

In a situation where an estate must repay, on behalf of the deceased, overpaid OAS benefits received in previous taxation years (in error or otherwise), how should the deduction be made for the benefit amounts that were added to the taxpayer's taxable income in the past?

CRA Response

Paragraph 56(1)(a) requires that any amount received by the taxpayer in a year that is a superannuation or pension benefit, including a benefit under the Old Age Security Act,[34] be included in computing income for that taxation year. In certain specific circumstances where an overpayment is identified (an excess or a benefit to which the taxpayer was not entitled), the taxpayer may be required to repay all or part of the OAS benefit received and included in computing income for the year or a previous year. Paragraph 60(n) permits the deduction of any amount paid by the taxpayer in the year (the "Repayment Year") as a repayment of certain amounts included in income, including the repayment of benefits overpaid under the O.A.S.A.[35] which were not deducted in computing taxable income. Thus, under paragraph 60(n), a repayment of overpaid benefits can only be deducted in computing income in the year of repayment. Where the taxpayer's income is insufficient in the Repayment Year to make full use of the deduction, paragraph 60(n.2) allows the taxpayer to deduct the amount repaid in computing income for the taxation year in which the overpayment was received and included in income under, among other provisions, subparagraph 56(1)(a)(i). That deduction is permitted to the extent that the amount repaid exceeds the taxpayer's taxable income in the Repayment Year and is not otherwise deducted in computing taxable income. Where the repayment of overpaid OAS benefits is made by an estate, the deduction provided for in paragraph 60(n) or paragraph 60(n.2), as the case may be, is not available where the amount of the OAS benefit was received and included in computing the income of the deceased taxpayer (and not in that of the estate) in the Repayment Year or a prior year. Indeed, the deduction under paragraphs 60(n) and 60(n.2) is available only to the extent that the amount was included in computing the income of the taxpayer claiming the deduction. We have advised the Department of Finance of our conclusion.

Q.11. FHSA and acquisition of a qualifying home in part but not in whole

Facts

Bruno is a Canadian resident living in Quebec. On May 15, 2023, he opened an FHSA and made a contribution of $8,000. A further contribution of $8,000 was made on January 1, 2024. He had never owned a home. On June 1, 2023, Bruno moved in with Martine and began a conjugal relationship with her. One year later, Bruno and Martine became common law spouses for tax purposes. Martine has been the sole owner of a single-family home since 2015. On December 1, 2024, Bruno and Martine signed a written agreement in which Bruno offered to purchase 50% of Martine's undivided interest in her single-family home. The offer to purchase stipulated that the acquisition date would be December 15, 2024. Bruno completed Form RC725 [36] and made a withdrawal of his entire FHSA account on December 11, 2024. Bruno acquired 50% of the undivided interest in Martine's single-family home on December 15, 2024.

Questions to CRA

(a) For the purposes of the definition of "qualifying withdrawal" in subsection 146.6(1), will Bruno be considered to have acquired a "qualifying home" as defined in subsection 146.6(1), given that the purchase of the property is for only 50% of the property and not 100%? (b) Would your answer be the same if Bruno had instead signed an offer to purchase a different share in Martine's single-family home? For example, 40%, 30% or even 1%? In other words, could the fact that the sale of a "housing unit located in Canada" involves only a portion (e.g., 50%, 40%, 30% or even 1%) and not all (100%) of the housing unit result in the definition of "qualifying withdrawal" not being satisfied?

CRA Response

General comments

If an individual who holds a FHSA wishes to make a qualifying withdrawal from that account to acquire a qualifying home, the individual must ensure that the amount received as a benefit meets the conditions described in the definition of "qualifying withdrawal" in subsection 146.6(1). Generally speaking, those conditions can be summarized as follows:

• The withdrawal must be made pursuant to a request on Form RC725 that sets out the location of a qualifying home that the individual has begun, or intends not later than one year after its acquisition by the individual to begin, using as a principal place of residence (paragraph (a) of the definition of "qualifying withdrawal").
• The individual must be a resident of Canada throughout the period that begins at the particular time and ends at the earlier of the time of the individual’s death and the time at which the individual acquires the qualifying home. In addition, the individual must not, during the four calendar years preceding the particular year in which the withdrawal is made, and the period in the particular year ending on the 31st day preceding the withdrawal, have an owner-occupied home within the meaning of paragraph 146.01(2)(a.1) (paragraph (b) of the definition of "qualifying withdrawal").
• The individual must have (prior to the withdrawal) entered into an agreement in writing for the acquisition or construction of the qualifying home before October 1 of the calendar year following the year in which the amount was received (paragraph (c) of the definition of "qualifying withdrawal").
• The individual must not have acquired the qualifying home more than 30 days before the withdrawal was made (paragraph (d) of the definition of "qualifying withdrawal").

If all the conditions for a qualifying withdrawal are not satisfied, the amount withdrawn from the individual's FHSA may be taxable and must be included in the individual's T1 return. In the situation described, the focus is on determining whether Bruno will meet the conditions set out in paragraph (c) of the definition of "qualifying withdrawal" in subsection 146.6(1). Under that paragraph, in order for a withdrawal made by an individual to qualify as a "qualifying withdrawal", the latter must, in particular, before receiving an amount as a benefit under the FHSA, have "entered into an agreement in writing [...] for the acquisition or construction of the qualifying home before October 1 of the calendar year following the year in which the amount was received”. The question, then, is whether Bruno's offer to buy an undivided 50% share of Martine's house constitutes a written agreement to acquire a qualifying home. The acquisition referred to a number of times in the definition of "qualifying withdrawal" in subsection 146.6(1) is first and foremost the acquisition described in greater detail in paragraph (c), i.e., an acquisition of the qualifying home that is provided for in a written agreement to which the individual is a party. As stated in Technical Interpretation 2023-0976921C6, in the context of the definition of "qualifying withdrawal", it is not clear, in our view, that the mere reference to the acquisition of a qualifying home, without explicit reference to the possibility of an acquisition made jointly with one or more persons, must exclude that possibility.

CRA Response to Question 11(a)

We believe that the provisions of section 146.6 taken as a whole do not exclude the possibility of an individual acquiring only an undivided interest in a qualifying home so as to become a co-owner. In the situation you have described, Bruno and his spouse Martine have entered into a written agreement for him to acquire, as co-owner, a building that is a qualifying home. Although Bruno intends to acquire only a 50% undivided share of the ownership of that building, as long as the other conditions of the definition of "qualifying withdrawal" are otherwise satisfied, we are of the view that Bruno's withdrawal from the FHSA could be a "qualifying withdrawal" for purposes of section 146.6.

CRA Response to Question 11(b)

It is a question of fact whether an individual has entered into an agreement in writing to acquire a "qualifying home". In cases where the individual intends to co-own a housing unit with one or more persons, it does not appear to be necessary that the co-ownership shares always be of equal proportions. However, in circumstances where the individual would acquire only an undivided interest, the proportion of which would appear to be disproportionate to the use of the dwelling as the individual’s principal place of residence, the written agreement could, depending on the situation, be considered not to have been entered into for the purpose of acquiring a qualifying home for the purposes of section 146.6.

Q.12 FHSA - Acquisition by gift and qualifying withdrawal

Facts

• Martine is a Canadian resident living in Quebec. She had a FHSA in the amount of $16,000.
• Martine had never owned a home, having always rented.
• On May 1, 2025, Martine's mother donated her single-family home to her daughter.
• The notarized deed of gift signed by Martine and her mother stipulated, among other things, immediate possession and occupancy.
• Martine planned to live in the residence as her principal place of residence from May 1, 2025.
• Martine completed Form RC725 and made a withdrawal from her FHSA on May 10, 2025.

Questions for CRA

In such a situation, would Martine meet all the conditions for the definition of "qualifying withdrawal" in subsection 146.6(1), in order to make a non-taxable withdrawal? More specifically, does the CRA agree that Martine's entering into a deed of gift with her mother ensures that paragraph (c) of the definition of "qualifying withdrawal" in subsection 146.6(1) is satisfied? Under that paragraph, for a withdrawal made by a taxpayer to qualify as a "qualifying withdrawal", the taxpayer must have "(…) entered into an agreement in writing before the particular time for the acquisition or construction of the qualifying home before October 1 of the calendar year following the year in which the amount was received”. For information purposes, the CRA has already stated in Technical Interpretation 2010-0370831E5[38] that, under the Home Buyers' Plan, where a written agreement is for the acquisition of a home by way of gift, there is a valid acquisition for the purposes of paragraph (b) of the definition of "regular eligible amount" in subsection 146.01(1), provided all other criteria are satisfied. We therefore assume that it would also be a valid acquisition for the purposes of the FHSA.

CRA Response

If an individual holding an FHSA wishes to make a qualifying withdrawal from that account to acquire a qualifying home, the individual must ensure that the amount received as a benefit meets the conditions described in the definition of "qualifying withdrawal" in subsection 146.6(1). Generally speaking, these conditions can be summarized as follows:

• The withdrawal must be made pursuant to a request on Form RC725 that sets out the location of a qualifying home that the individual has begun, or intends not later than one year after its acquisition by the individual to begin, using as a principal place of residence (paragraph (a) of the definition of "qualifying withdrawal").
• The individual must be a resident of Canada throughout the period that begins at the time of withdrawal and ends at the earlier of the time of the individual’s death and the time at which the individual acquires the qualifying home. In addition, the individual must not, during the four calendar years preceding the particular year in which the withdrawal is made, and the period in the particular year ending on the 31st day preceding the withdrawal, have an owner-occupied home within the meaning of paragraph 146.01(2)(a.1) (paragraph (b) of the definition of "qualifying withdrawal").
• The individual must have (prior to the withdrawal) entered into an agreement in writing for the acquisition or construction of the qualifying home before October 1 of the calendar year following the year in which the amount was received (paragraph (c) of the definition of "qualifying withdrawal").
• The individual must not have acquired the qualifying home more than 30 days before the withdrawal was made (paragraph (d) of the definition of "qualifying withdrawal").

If all the conditions for making a qualifying withdrawal are not satisfied, an amount withdrawn from the FHSA by an individual may be taxable and must be included on the individual's T1 return. In this case, we understand that Martine meets the conditions for a qualifying withdrawal. In particular, the fact that Martine's mother is making a gift of her single-family home to her daughter Martine, by way of a notarized deed of gift, should ensure that the conditions of paragraph (c) of the definition of "qualifying withdrawal" in subsection 146.6(1) are satisfied. Under that paragraph, in order for a withdrawal made by a taxpayer to qualify as a "qualifying withdrawal", the taxpayer must have "entered into an agreement in writing before the particular time for the acquisition or construction of the qualifying home before October 1 of the calendar year following the year in which the amount was received”. In our view, where a written agreement is entered into for the acquisition of a home by way of gift, that is a valid acquisition for the purposes of paragraph (c) of the definition of "qualifying withdrawal" in subsection 146.6(1). Furthermore, as indicated in Income Tax Folio S1-F3-C2,[39] in the case of the acquisition of ownership of a property by gift or inheritance, a taxpayer acquires such ownership on the date the taxpayer obtains a right to possess the property.

Q.13. Withdrawal of an investment through a swap transaction

The income tax rules respecting advantages prohibit most transfers of property between a registered plan and its controlling individual. Those transfers, known as swap transactions, may give rise to a tax under section 207.05. As stated in 3.24 of Income Tax Folio S3-F10-C3,[41] to sell to its controlling individual an investment that has become non-qualified or prohibited to the extent that the controlling individual is entitled to a refund of the 50% non-qualified or prohibited investment tax in respect of the investment. Under subsection 207.04(4), to qualify for the 50% tax refund, the trust must have disposed of the non-qualified or prohibited investment before the end of the calendar year following the calendar year in which the tax arose, or any later time that the Minister considers reasonable in the circumstances. However, no refund is possible if it is reasonable to consider that the controlling individual knew, or ought to have known, that the investment was or would become a prohibited or non-qualified investment. A controlling individual of a registered plan may be aware or anticipate that a qualified investment will become non-qualified or prohibited in the near future. In some situations, the investment may be illiquid and it may be difficult for the trust to dispose of it without significant tax consequences. Examples include shares of a private company or mutual fund units where a reorganization has rendered the investment illiquid.

Questions to CRA

(a) In those situations, would CRA accept that the swap transaction be completed without incurring Part XI.01 tax before the investment becomes prohibited or non-qualified? (b) If the controlling individual anticipates, or is advised by the issuer of the registered plan, that property held by the trust will become a non-qualified or prohibited investment and the trust is unable to dispose of the property in an arm's length transaction before the investment becomes non-qualified or prohibited, because of the impossibility of selling the property or withdrawing it without material consequence (for example, the property cannot be sold and a withdrawal-in-kind of the property from the RRSP would generate taxable income), will the individual qualify for the 50% tax refund and be able to use the swap transaction without being subject to tax on a benefit?

CRA Response to Question 13(a)

Under section 207.05, a tax is payable under Part XI.01 for a calendar year if, in the year, an advantage in relation to a registered plan is extended to, or is received or receivable by, the controlling individual of the registered plan, a trust governed by the registered plan, or any other person who does not deal at arm’s length with the controlling individual. Generally, an "advantage" is defined in subparagraph 207.01(1)(b)(iii) to include a benefit that is an increase in the total fair market value of the property held in connection with the registered plan if it is reasonable to consider that the increase is attributable to a swap transaction. As defined in subsection 207.01(1), a "swap transaction" is generally a transfer of property between the registered plan and its controlling individual or a person with whom the controlling individual does not deal at arm’s length, unless certain exceptions apply. One of those exceptions is paragraph (c), which states that a transfer of a prohibited investment[42] or non-qualified investment[43] from the registered plan for consideration, will not be a swap transaction provided it is made in circumstances where the controlling individual is entitled to the refund under subsection 207.04(4) on the transfer. The exception provided for in paragraph 207.01(1)(c) of the definition of "swap transaction", which is intended to facilitate the withdrawal of a prohibited or non-qualified investment from a registered plan, applies only to a transfer of a prohibited or non-qualified investment from the plan. Thus, that exception does not apply when the transfer is made before the investment becomes prohibited or non-qualified. Furthermore, it is not CRA's practice to allow, by administrative concession, an exception to the swap transaction rules in those circumstances.

CRA Response to Question 13(b)

Under subsection 207.04(1), the controlling individual of a registered plan is subject to a 50% tax when property that is a prohibited investment or a non-qualified investment is acquired by the trust governed by the plan. Under subparagraph 207.04(4)(b)(ii), for the controlling individual to be entitled to a refund of the 50% tax, the registered plan trust must have disposed of the property before the end of the calendar year following the year in which the tax arose (or at such later time as the Minister considers reasonable in the circumstances). However, subparagraph 207.04(4)(b)(i) specifies that the refund of this tax will be nil where it is reasonable to consider that the controlling individual knew or ought to have known, at the time the property was acquired by the trust, that the property was or would become a non-qualified or prohibited investment. Under subsection 207.01(6), property that becomes a non-qualified or prohibited investment is deemed to have been disposed of and reacquired by the trust. More specifically, that subsection deems property held by a registered plan trust to have been disposed of immediately before it became a non-qualified or prohibited investment, for proceeds of disposition equal to its FMV. The trust is then deemed to have reacquired the property at the same time at a cost equal to that FMV. In this situation, the controlling individual is informed that the qualified investment held in the registered plan will become non-qualified or prohibited before the deemed acquisition of the property by the trust. The result is that, at the time the trust governed by the registered plan is deemed to acquire the property, the individual knew or should have known that the property acquired by the trust would become a prohibited or non-qualified investment. Indeed, by virtue of the deeming rule in subsection 207.01(6), the time of acquisition of the property by the trust is deemed to be the time immediately before the time at which the property becomes a prohibited investment or a non-qualified investment to the trust. Consequently, in such a situation, the individual would not be eligible for the 50% tax refund, as the condition set out in subparagraph 207.04(4)(b)(i) would be satisfied in those circumstances. Also, since these would not be circumstances in which the controlling individual is entitled to the refund provided for in subsection 207.04(4) in respect of the transfer, the exception provided for in paragraph 207.01(1)(c) of the definition of "swap transaction" would not apply, if applicable, with the result that the tax in respect of a benefit provided for in subsection 207.05(1) would apply. It should be noted that subsection 207.06(2) provides that the Minister may waive or cancel, on a case-by-case basis, all or part of the 50% tax provided for in subsection 207.04(1) or the 100% tax on benefits provided for in subsection 207.05(1), if it is just and equitable to do so having regard to all the circumstances. Factors considered by the Minister in granting such a cancellation or waiver generally include reasonable error, the extent to which the transaction or series of transactions that gave rise to the tax also gave rise to another tax, and the extent to which payments have been made from the person's registered plan. For more information on this subject, and to find out how to apply for cancellation or waiver of tax in such cases, please refer to paragraphs 2.36 to 2. 38 of Income Tax Folio S3-F10-C2, [44] and paragraphs 3.51 to 3.53 of Income Tax Folio S3-F10-C3.