News of Note
CRA indicates that its position, that s. 83(2) elections and resolutions must specify dollar amounts, extends to s. 84(3) deemed dividends
Email this Content9 October 2025 APFF Roundtable, Q.11 stated in relation to a cash capital dividend declared and paid by a vendor before the post-closing adjustments had been finalized:
The CRA's position, as stated in Technical Interpretation 2020-0852211C6, remains that, generally, the amount of the dividend designated under the election provided for in subsection 83(2) must be stated on Form T2054 and in the resolution authorizing that election in order for it to be considered valid, regardless of whether the election is filed within the prescribed time limits, or late and accompanied by the payment of the penalty established under subsection 83(4).
At the 2025 CTF Roundtable, CRA briefly indicated that this same position applied to an s. 84(3) deemed dividend whose exact amount was subject to post-closing adjustments (and where the authorizing corporate resolution was to refer to a formula taking any such adjustments into account).
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.14 under s. 83(2).
CRA confirms flexibility as to which corporation in a private group settles an s. 15(2.5) employee buy/sell trust
Parentco, a private corporation, wholly owns Opcos, each of which has employees who, under an employee ownership plan, are allowed to acquire and sell shares of Parentco. To this end, a trust intended to comply with the s. 15(2.5) exception from s. 15(2), will purchase and sell, for their FMV, Parentco shares to and from the employees.
CRA confirmed that, as permitted under s. 15(2.5), Parentco or any of the Opcos could settle the trust for the purpose of purchasing and selling the shares of Parentco from or to eligible employees of Parentco or of any or all of the Opcos.
Neal Armstrong. Summary of 10 October 2025 External T.I. 2025-1076451E5 under s. 15(2.5).
CRA is expanding the circumstances in which it may be prepared to issue rulings on factual matters
The Rulings Directorate is open to expanding situations in which it may issue rulings on matters that are primarily factual, provided that the taxpayer provides complete details and credible documentation to support those facts. Potential subject matters include:
- Transactions or arrangements involving crypto assets.
- Certain capital gains exemption issues, including shares’ qualification as QSBC shares.
- Whether expenditures are CEE.
- Taxability of distributions made by an Indian band to members.
- Whether distributions made by a non-profit organization disqualify it as such.
- Whether an organization has been organized as an NPO.
- Whether s. 149(1.2) allows an entity earning certain income outside its geographical boundaries to retain its exempted status under ss. 149(1)(d.5) and (d.6).
The Directorate is not currently considering rulings on the Global Minimum Tax Act given that its interpretation entails coordination with Canada’s tax partners.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.13 under General Concepts - Audit, Filing and Assessment Procedure.
CRA states that a meal allowance based solely on kilometerage is not reasonable
A transport company paid its employees a meal allowance based solely on the number of kilometers traveled in the course of their employment, which took them on travel outside the municipal area where they normally reported to work. However, their travel never required them to spend the night away from home.
With this as context, CRA stated that “a meal allowance based solely on distance, time or any other criterion cannot, in itself, be considered a reasonable allowance” for purposes of s. 6(1)(b)(vii). CRA went on to provide a non-exhaustive list of factors it considered relevant in determining whether a meal allowance is reasonable, including:
• the average cost of ordinary meals in the area where the employee is travelling;
• the availability of food options along the employee's route;
• the availability of meals provided to the employee at no cost [e.g., is mom along the route?]; …
It would seem impracticable to expect employers to document this.
Neal Armstrong. Summary of 12 November 2025 External T.I. 2022-0923141E5 F under s. 6(1)(b)(vii).
CRA rules on a 2-step distribution by a ULC to avoid Art. IV(7)(b) of the Canada-US Convention
CRA provided a ruling on the two-step approach for avoiding the application of the anti-hybrid rule in Art. IV(7)(b) of the Canada-US Income Tax Convention to a dividend deemed to be paid to US Parent by a Canadian subsidiary (“Holdco” - presumably a ULC) that is fiscally transparent for Code purposes.
Under the proposed transactions:
- Opco (a taxable Canadian corporation which is not fiscally transparent for Code purpose) redeems all of its preferred shares held by the US Parent, with the applicable Part XIII tax being remitted.
- Opco then declares and pays a dividend to Holdco out of its safe income.
- Holdco adds a balance to its common share capital account, transferred out of its retained earnings, thereby giving rise to a deemed dividend for Canadian purposes. Crucially, this transaction is disregarded for Code purposes and would be disregarded for Code purposes even if Holdco were not fiscally transparent.
- Holdco then reduces the balance in its common share capital account through a cash distribution equal to the increase in the previous step minus the amount of the Part XIII tax that was applicable to the above deemed dividend.
CRA ruled that Art. IV(7)(b) of the Convention would not apply to treat the deemed dividend as not having been paid to or derived by US Parent, so that withholding tax at the Convention-reduced rate of 5% would apply.
2012-0471921R3 is similar.
Neal Armstrong. Summary of 2025 Ruling 2024-1035241R3 under Treaties – Income Tax Conventions – Art. 4.
CRA indicates that the former partnership business need not be carried on continuously throughout the 3-month period referred to in s. 98(5)
S. 98(5) requires that, within 3 months of a Canadian partnership ceasing to exist, one of the members (the “proprietor”) must carry on the business that was previously the business of the partnership.
CRA indicated that there was no requirement that the proprietor carry on the business throughout the 3-month period, so that the business could recommence at any time during that period, i.e., the phrase "within the 3 months" does not mean "throughout the 3 months."
However, whether the former partner carried on the former partnership business and continued to use, in the course of that business, the partnership property acquired on the winding-up, was a question of fact (e.g., there might be one business even if there was a hiatus during which it was not carried on).
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.11 under s. 98(5).
Income Tax Severed Letters 10 December 2025
This morning's release of two severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that those claiming full clean economy credits should take “reasonable steps” to ensure compliance by their subcontractors with the union labour-rate requirements
Where a clean economy incentive claimant has claimed its tax credit at the “regular tax credit rate” (i.e., 10% higher than the (unenhanced) “reduced tax credit rate”) but is unable to substantiate having met the “Compensation Requirement” (respecting meeting (union-rate) prevailing wages) for covered workers employed by a third-party contractor, would CRA seek to apply the gross negligence penalty under s. 127.46(9)?
CRA indicated that the mere fact that a claimant is not able to demonstrate that covered workers employed by others met the Compensation Requirement would not, by itself, support the imposition of the penalty. However, to access the regular tax credit rate, a claimant who uses a contractor must be able to show that it took reasonable steps to ensure compliance with the Compensation Requirement. If no reasonable steps were taken, the claimant, by claiming at the regular rate, would run the risk of a determination that it, in circumstances amounting to gross negligence, failed to meet the prevailing-wage requirement.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.10 under s. 127.46(9).
CRA confirms that s. 191(4) specified amounts must be crystallized dollars, and that a PAC can increase a redemption amount above the specified amount
CRA indicated that the objective of s. 191(4) would be defeated if the issuer could specify the amount by way of a formula or simply indicate that the specified amount equalled the fair market value of the consideration for the share – and adjusting the specified amount under a price adjustment clause (PAC) was equally problematic.
CRA maintained its position that, in order for its value to have been specified, the specified amount must be expressed as an actual dollar amount and not as a formula, and it must not be subject to change pursuant to a PAC or otherwise.
Where a PAC operated to increase the share redemption amount so as to equal or exceed the specified amount, this would not result in the deemed dividend being disqualified as an excluded dividend – although by virtue of s. 191(5), the excess of the dividend over the specified amount would not qualify as an excluded dividend. However, where the PAC instead reduced the redemption amount to less than the specified amount, the entire amount of the deemed dividend would be disqualified from being an excluded dividend.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.9 under s. 191(4).
CRA finds that the majority-interest beneficiary of a discretionary trust was not affiliated with a subsidiary of the trust
To focus on the most informative scenario, an individual (“A”), who was a majority-interest beneficiary of a discretionary trust, thus was affiliated with the trust pursuant to s. 252.1(1)(g)(i). The trust held 80% of the common shares of Bco (which had only one class of shares) and A held the other 20%. A was the sole trustee.
Would A and the trust form an affiliated group of persons by which Bco was controlled such that Bco was affiliated with A pursuant to s. 251.1(1)(b)(ii)?
CRA (which indicated that it would restrict its remarks to matters of de jure control) noted that, pursuant to s. 251.1(4)(a), reference to a trust does not include a reference to the trustee. Accordingly, it was the trust alone that had de jure control of Bco, such that the trust and Bco were affiliated. Since Bco was controlled by a single person (the trust), in accordance with the Southside principle (which in this context had not been overridden by a provision like s. 256(1.2)(b)), it could not be said that Bco was controlled by a group of persons consisting of A and the trust.
This would suggest, for instance, that a sale by Bco to A would not be subject to the suspended loss rules.
Neal Armstrong. Summary of 2 December 2025 CTF Roundtable, Q.8 under s. 251.1(1)(b)(ii).