News of Note
CRA indicates that a non-resident corporation could be a foreign affiliate for s. 233.4 reporting purposes of only the lowest-tier corporation in a Canadian corporate group
Email this ContentEight resident individuals together held all the shares of Canco, with percentages ranging from 10.03% to 24%, through their respective Canadian holding companies (in the case of seven of them) and directly (in the case of the eighth.) Canco, in turn, wholly owned a non-resident corporation, Nrco1, which wholly owned Nrco2 and Nrco3. The three Nrcos were foreign affiliates (FAs) and controlled foreign affiliates (CFAs) of each of the individuals, the seven holding companies, and Canco, under the definitions in ss. 95(1) and (4).
Regarding whether those holding corporations and individuals had reporting obligations under s. 233.4(4) in respect of the Nrcos, CRA noted that, under the s. 95(4) equity percentage definition as modified for s. 233.4 purposes by s. 233.4(2)(a), for purposes of s. 233.4, a non-resident corporation could generally only be an FA or CFA of a taxpayer resident in Canada to the extent that the taxpayer directly owned shares in the non-resident corporation, or any other non-resident corporation that directly or indirectly owned shares in the non-resident corporation. As indicated in the Explanatory Notes, a non-resident corporation could be a foreign affiliate of only the lowest-tier corporation in a group of Canadian corporations under common control.
Here, the Nrcos could be FAs only of Canco, and not of the individuals and holding companies, for s. 233.4 purposes, so that the latter had no reporting requirements under s. 233.4(4).
Neal Armstrong. Summary of 30 January 2025 External T.I. 2024-1036931E5 under s. 233.4(2)(a).
GST/HST Severed Letters May 2025
This Friday's release of three severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their May 2025 release) is now available for your viewing.
CRA rules an RCA trust’s refundable Pt. XI.3 tax could be refunded through winding it up and replacing it by a new LC trust
An RCA trust had been set up by Aco to fund pensions to its executives under a SERP. The value of its assets is less than the actuarial value of its liabilities.
The existing RCA trust will sell all its assets and on December 31 will distribute the cash proceeds to Aco (producing an income inclusion under s. 12(1)(n.3).) Consequently, the existing trust will not hold any assets at that year end other than its claim to a refund of the refundable tax, although the SERP will not be terminated.
The following year, a new trust will be settled by Aco, with a view to better securing the benefits payable under the SERP. The only asset of the new trust will be a letter of credit, with Aco contributing the amounts required to pay the LC fees. The payment of the SERP benefits will be made by Aco from its general revenues.
CRA ruled that the existing trust will be able to make the s. 207.5(2) election for the taxation year in which it disposed of all its assets, on the basis that its refundable tax at the end of that taxation year will be nil. In other words, the transactions will generate a complete refund of the existing refundable tax, and the only new refundable tax generated will be based on the quantum of the LC fees.
Neal Armstrong. Summary of 2024 Ruling 2024-1018811R3 F under s. 207.5(2).
CRA indicates that information missing from a T3 return which is substantive to the return would cause a s. 94(3)(f) made with that return to be invalid
S. 94(3)(f) and the s. 94(1) definition of “electing trust” contemplate that a trust which is deemed under s. 94(3)(a) to be resident may elect, with its return for its first taxation year in which it is subject to the s. 94 rules, to exclude its “non-resident portion” from taxation under those rules. If a trust did not file a schedule of assets as requested in Question 1 of the T3 income tax return for that year, would an election made by it under s. 94(3)(f) be invalid?
CRA noted that, having regard to s. 32 of the Interpretation Act, the question was whether the missing information could be referred to as being substantial to the T3 return, i.e., impacting the substance of that prescribed form. Although this was a question of fact, CRA indicated that it was reasonable to conclude that a schedule of assets supporting the amount of income subject to Canadian tax (or the non-resident portion that was not subject to Canadian tax) may be viewed as substantive to the T3 return, so that failure to provide the Schedule would cause the T3 return to be considered to be invalidly filed.
Accordingly, where an s. 94(3)(f) election was filed with a T3 return for that first taxation year which was invalid because of the missing schedule, that election also would be invalid.
If the taxpayer then made a second attempt at filing a T3 return that was not missing substantive information and therefore could be considered validly filed, it would represent a return of income for the first taxation year in which the election could be made, so that the s. 94(3)(f) election filed with that return would be validly filed, even though the return was filed late.
Neal Armstrong. Summary of 4 October 2024 Internal T.I. 2024-1013191I7 under s. 94(3)(f).
Income Tax Severed Letters 16 July 2025
This morning's release of five severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Bosa – BCSC considers that it lacked the jurisdiction to consider a request to rectify a clause in a family trust indenture whose interpretation was at issue in an impending TCC appeal
The petitioners were the beneficiaries of a family trust, who sought to rectify the terms of the Trust Indenture to clarify that the assets of the trust had vested indefeasibly in them on the date defined in the Trust Indenture as the "Distribution Date," which occurred approximately 10 months before the 21st anniversary of the formation of the trust.
CRA assessed the trust on the basis that its property had not been distributed on the Distribution Date and, therefore, was deemed to be disposed of under s. 104(4)(b) on the 21st anniversary. A six-day trial in the Tax Court to consider the trust’s appeal of the reassessments had been set down for May 2026.
In finding that she lacked the jurisdiction to grant the requested rectification order and related declarations, Shergill J. stated:
It is an established principle that where a provincial superior court has concurrent jurisdiction with the Tax Court, it should exercise this jurisdiction only over issues that are “ancillary” rather than “fundamental” to the Tax Court proceedings ... .
The interpretation of the Trust Indenture which they [the petitioners] urge me to adopt is based on the same arguments that the Reassessment officer considered and rejected. Those arguments are the subject of the appeal to the Tax Court … .
In further finding that, even if she had jurisdiction, rectification would not be appropriately granted, she stated, after referring to Collins Family Trust:
I consider the declarations that are being sought … to be an attempt to avoid an unintended tax liability. Equitable relief is not available in such a circumstance.
Neal Armstrong. Summary of Bosa v Canada, 2025 BCSC 1284 under General Concepts – Rectification.
Tremblay – Quebec Court of Appeal confirms that s. 56(2) applied to the free occupation by the taxpayer’s ex-spouse of a condo owned by a corporation indirectly controlled by him
The Quebec Court of Appeal confirmed that the taxpayer, who had agreed in connection with their separation to let his ex-spouse occupy, free of charge, a condo owned by a corporation controlled by him through a holding company, was taxable under the Quebec equivalent of s. 56(2). The Court rejected a submission that there could be no transfer of rights (or property) for such purposes in the absence of a lease between the ex-spouse and the corporation.
Neal Armstrong. Summary of Tremblay v. Agence du revenu du Québec, 2025 QCCA 783 under s. 56(2).
We have translated 8 more CRA interpretations
We have translated two CRA interpretations released last week and a further 6 CRA interpretations released in June of 2000. Their descriptors and links appear below.
These are additions to our set of 3,255 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).
Imprimeries Transcontinental - Court of Quebec finds that a print shop producing advertising flyers was producing goods for sale
A print shop, which printed advertising flyers for customers such as Canadian Tire, Loblaws and Sobeys, acquired robotic equipment, which was used to transfer the newly printed flyers to pallets for distribution. The ARQ ultimately conceded that such robotic equipment was used in the manufacturing or processing of goods but maintained its position that the flyers did not qualify as goods for sale – so that it denied related Quebec investment tax credit (ITC) claims.
In confirming the availability of such ITCs, Fournier JCQ found that the contracts with the customers were contracts of sale rather than contracts for services – including finding that the print shop transferred ownership of the flyers to its customers, and that essentially the only services they received from it were the printing of the flyers which were sold to them. It was irrelevant that the ultimate users of the flyers did not pay for them.
The concept of equipment acquired to be used directly or indirectly primarily in the manufacturing or processing of goods for sale or lease appears in various contexts including the description of a Class 29 depreciable property.
Neal Armstrong. Summary of Imprimeries Transcontinental Inc. v. Agence du revenu du Québec, 2025 QCCQ 1926 under Class 29.
CRA finds that wind turbine workers are not Red Seal workers for ITC purposes
Wind turbine workers who install a company’s wind turbines on a project perform a variety of specialized duties, including some duties that could theoretically be otherwise performed by construction craft workers, millwrights and concrete finishers, but their duties in fact are not performed by such tradespeople, nor by any other federally, territorially or provincially-registered tradespeople. In order for the company to maximize clean energy credits, the formula for a particular installation taxation year embedded in s. 127.46(5)(a) requires (on a “reasonable efforts” basis) that the ratio of hours worked by apprentices registered in a Red Seal trade to total hours worked by Red Seal workers be at least 10%. For the definition of “Red Seal worker” in s. 127.46(1) to apply, it is required that their “duties are, or are equivalent to, those duties normally performed by workers in a Red Seal trade.” The Red Seal program is a national program that sets common standards to assess the skills of tradespeople across Canada.
In concluding that the wind turbine workers did not need to be included in the denominator of the above formula, CRA noted that such workers “were not trained or certified by the Red Seal Program or any equivalent provincially or territorially designated trade program, because no such program exists” so that “the duties performed by the wind turbine workers cannot be said to be ‘duties normally performed by workers in a Red Seal trade’.”
Neal Armstrong. Summary of 23 April 2025 External T.I. 2024-1046391E5 under s. 127.46(1) – red seal worker.