News of Note
CRA finds that a conditional contractual obligation to issue shares in consideration for a cash advance might be subject to s. 49.1 on the share issuance
Email this ContentA SAFE (“Simple Agreement for Future Equity”) is a financing agreement in which an investor provides funds to a company in exchange for the right to receive shares upon the occurrence of a future event, generally a future financing or a winding-up event, at a preferential price.
CRA indicated that, assuming the SAFE was not a share, or a bond, debenture or note, the future issuance event would not come within s. 51(1). However, s. 49.1 was also relevant to the question as to whether the conversion of a SAFE into shares, and it was conceivable that there would be no disposition on such conversion.
Neal Armstrong. Summaries of 9 October 2025 APFF Roundtable, Q.12 under s. 51(1) and s. 49.1.
CRA confirms that a valid s. 83(2) election and the accompanying resolution must specify a dollar amount
Immediately after its sale of a subsidiary for a sale price based that would not be finalized until audited financial statements were issued, the seller adopted a resolution providing for the payment of a capital dividend corresponding to the portion of the non-taxable gain realized on the sale, but whose amount would not be known with certainty until three months later.
(a) Would CRA consider the election filed on the day of that resolution to be invalid because it did not stipulate a dollar amount?
(b) Would be valid If it instead was filed late, with the applicable penalties, but without a new resolution specifying the amount?
CRA responded:
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).
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.11 under s. 83(2).
CRA confirms that the departure tax deferral under s. 220(4.5)(a)(i) is available for AMT payable because of s. 128.1(4)(b)
CRA confirmed that, where an individual was deemed by s. 128.1(4)(b) to dispose of property on exiting Canada, it was possible that the amount of minimum tax calculated pursuant to s. 127.5(a) would exceed the (regular) tax otherwise payable by the individual under Division E, exclusive of s. 120. CRA went on to find that the election under s. 220(4.5) would allow the individual to defer the payment of an amount equal to the excess of such AMT over the tax that would otherwise have been payable by the individual for the year of emigration but for the application of s. 128.1(4)(b).
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.10 under s. 220(4.5)(a)(i).
CRA concludes that a land settlement claim received by an Indian band council or a trust formed by it would be exempted to non-Indian members when distributed to them
The federal government entered into an agreement with a band council representing a First Nation regarding the settlement of specific land claims pursuant to which the council will receive compensation for the First Nation. The members of the First Nation include individuals who were not Indians within the meaning of s. 2(1) of the Indian Act and who reside either on a reserve or off a reserve.
CRA found that compensation paid directly to the council would not be subject to tax, based on the conclusion in 2016-0645031I7 that all bands created under the Indian Act constitute exempt municipalities under s. 149(1)(c).
If the council distributed the compensation directly to band members, CRA would not consider that distribution to come from a source of income or proceeds of disposition of property by the members and, therefore, would not be included in computing their income under s. 3(a).
If the council formed a trust to distribute the compensation, the CRA would consider the compensation transferred to the trust to constitute capital to the trust, which could be distributed tax-free to the members. However, the application of s. 75(2) would need to be considered, if the trust earned any income from the compensation, as the council was both the settlor and the beneficiary of the trust.
Neal Armstrong. Summaries of 19 August 2025 External T.I. 2025-1066571E5 F under s. 149(1)(c), s. 3(a) and s. 104(13).
CRA confirms that the QSBCS exception to s. 55(5)(e)(i) applied to the repurchase of QSBCS held by a sibling’s Holdco simultaneously with the repurchase of the other sibling’s Holdco’s non-QSBCS
Two sisters (A and B) each held, through their respective wholly-owned Holdcos (Holdco A and Holdco B) 50% of the shares of Opco, which were qualified small business corporation shares (QSBCS), and 50% of the shares of Investmentco, which were not.
Opco repurchased its shares held by Holdco B, and Investmentco simultaneously repurchased its shares held by Holdco A.
At issue was the rule in s. 55(5)(e)(i) deeming siblings to be unrelated for s. 55 purposes and the exception to that rule (also stated in s. 55(5)(e)(i)) for where a dividend is paid on a QSBCS. CRA confirmed that the repurchase by Opco would not be subject to s. 55(2) by virtue of such exception (even though such repurchase occurred as part of the same series of transactions as the repurchase by Investmentco), and that the repurchase by Investmentco would be subject to s. 55(2) since such exception was inapplicable.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.9 under s. 55(5)(e)(i).
CRA indicates that most (e.g., calendar-year) corporations should continue to use the old (pre-Update) CRA positions in computing safe income for 2023 and prior taxation years
In its 2023 Safe Income Paper, CRA indicated that its changes in position would apply prospectively to calculations of safe income for taxation years beginning after November 28, 2023.
CRA now confirmed that this meant that “a corporation's safe income must be calculated for each taxation year in accordance with the CRA positions applicable to that year.” For example, if a calendar-year corporation began a series of transactions in September 2025 that would include the payment of a dividend to which s. 55(2) would apply, it would determine its safe income as of September 2025 by calculating its safe income for each of its taxation years up to and including its 2023 taxation year using its old positions, and for its 2024 and 2025 taxation years using its new positions.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.8 under s. 55(2.1)(c).
CRA indicates that there is no set-off of an allowable refund of s. 207.04(1) tax of a controlling individual against that tax if the allowable refund arose in the following year
Where the controlling individual of a registered plan is subject in a year to the 50% tax payable pursuant to s. 207.04(1) for a year on the FMV of a non-qualified or prohibited investment, CRA allows a set-off of an allowable refund of that tax (generated pursuant to s. 207.04(4)) against that tax if the allowable refund arises in the same year, so that no net amount has to be remitted pursuant to the RC339 form. What if the allowable refund arises in the following year but before the RC339 return is required to be filed, e.g., because a non-qualified investment was not disposed of until early in that subsequent year?
CRA indicated that the set-off was only available pursuant to s. 207.07(1) where the allowable refund arose in the same year as the tax – and that if it arose in a subsequent year, the refund was to be dealt with separately by CRA pursuant to s. 207.07(2).
Neal Armstrong. Summaries of 9 October 2025 APFF Financial Planning Roundtable, Q.1 under s. 207.04(4) and s. 207.07(2).
Income Tax Severed Letters 29 October 2025
This morning's release of three severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA indicates that the amount of capital gain realized on the partial repayment of two advances with low and full basis turned on whether they were separate properties and how the debtor applied the repayment
If two advances owing to the taxpayer by the same corporation were not a single property and not identical properties (a determination which per s. 248(12) was to be made without regard to their different principal amounts), then the first advance had a low ACB due to the prior application of s. 80(10), and the second advance had full basis. CRA noted that under the Quebec law, the debtor generally had the right to indicate, when repaying, which debt was being discharged. Accordingly, whether the amount of a partial repayment of the advances that exceeded the amount of the first advance but not that of the second gave rise to a capital gain turned on whether the debtor applied the repayment first to the first advance or to the second.
On the other hand, if they were identical properties or a single property (it did not matter which), their ACBs would be pooled and a capital gain, based on using a pro rata portion of the total ACB, would be realized on the repayment.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.7 under s. 47(1) and General Concepts – Payment and Receipt.
CRA indicates no prohibition against the use of the intergenerational transfer rules on a simultaneous sale of 2 QSBCS corps (one a specified group entity) to a childco
One of the “intergenerational transfer” rule requirements, in s. 84.1(2.31)(a) or (2.32)(a), is that a previous inter-generational exception to s. 84.1 has not previously been sought. In 2024-1038231C6, CRA addressed the situation where a parent, who has not previously sought out the intergenerational exception, simultaneously disposes of subject shares to two separate purchaser corporations, each wholly-owned by an adult child. CRA indicated that the s. 84.1(2.31)(a) or (2.32)(a) exception could be met on the basis that the two (or multiple) dispositions occur at the same time as part of the same genuine intergenerational transfer.
Now, CRA has provided essentially the same response to a variation on this transaction. An individual, who held all the shares of Opco, which were qualified small business corporation shares (QSBCS), and all of the shares (also QSBCS) of Realtyco, which was a specified group entity and whose sole asset was a commercial building leased to Opco, simultaneously sold all those shares to a corporation wholly owned by her adult child.
CRA indicated that if such simultaneous sale occurred in the context of the same bona fide intergenerational transfer of the business, and no exception had previously been claimed in respect of the same business carried on, the s. 84.1(2.31)(a) or (2.32)(a) condition would be satisfied for each disposition.
Neal Armstrong. Summary of 9 October 2025 APFF Roundtable, Q.6 under s. 84.1(2.31)(a).