News of Note
CRA finds that a corporation is not affiliated with itself for purposes of the EIFEL – excluded interest rules
Email this ContentA Co and its wholly owned subsidiary, B Co (both taxable Canadian corporations) were the only partners of a partnership. A Co owed interest to the partnership.
Whether the interest qualified as "excluded interest" (e.g., so as to be excluded from the interest and financing expenses of A Co for EIFEL purposes if so elected) turned on the requirement under s. (d)(ii)(A) of the definition thereof that each member of the partnership be an "eligible group entity" in respect of A Co. Since B Co clearly was affiliated with A Co, this turned on whether the taxpayer (A Co) was affiliated with the other member of the partnership (A Co), i.e., on whether A Co was affiliated with itself.
In rejecting this proposition (so that it did not consider the interest to be excluded interest), CRA stated:
Subsection 251.1(1) delineates the meaning of “affiliated persons” or “persons affiliated with each other”, for the purposes of the Act. It does not deem a corporation to be affiliated with itself. For the purpose of applying section 251.1, to establish whether two different entities or persons are affiliated, paragraph 251.1(4)(a) states that “persons are affiliated with themselves”. There is no specific rule deeming a corporation to be affiliated with itself, for the purpose of the “excluded interest” election. Therefore [s. (d)(ii)(A)] would not be satisfied.
In reaching this conclusion, we kept in mind the main rationale of the “excluded interest” election, namely the facilitation of typical loss consolidation transactions [as per the Explanatory Notes].
The contrary view could also be argued: Nowhere in s. 251.1 does it state that affiliated persons must be “two different entities” and s. 251.1(4)(a) states the opposite. S. 251.1(4)(a) deems a person to be affiliated with itself for the purposes of s. 251.1, which constitutes a comprehensive code for determining whether persons are affiliated. Therefore, a person may generally be affiliated with itself, including under the EIFEL rules. Furthermore, the statement by the CRA that the “main” rationale of the excluded interest election is to deal with typical loss consolidation transactions acknowledges that there are other uses of the excluded interest election. (For a harder case that nonetheless resulted in an expansive application of a deeming provision, see Canada v. Olsen, 2002 FCA 3.)
Neal Armstrong. Summary of 18 November 2025 Roundtable, 2025-1082041C6 - TEI 2025 – Q. C.4 under s. 18.2(1) – excluded interest - (d)(ii)(A).
CRA confirms that funeral prepayments received in trust under the applicable Quebec Act are not assets of a funeral company
CRA confirmed that amounts received under a prearranged funeral services contract which are required to be held in trust under s. 21 of the Quebec Act respecting arrangements for funeral services and sepultures (the “LASFS”) by the recipient funeral-services corporation, are not considered assets of that corporation for the purposes of the definitions of small business corporation and qualified small business corporation share.
Neal Armstrong. Summary of 20 November 2025 External T.I. 2022-0940101E5 F under s. 248(1) – SBC.
Amex Bank – Federal Court of Appeal confirms that costs of rewards under a credit card loyalty program were incurred in promoting the supply of credit: no ITCs
CRA denied the input tax credit (“ITC”) claims of Amex for its 2002 to 2012 taxation years for GST/HST paid on expenses arising in connection with the administration and operation of Amex’s Membership Rewards Program (“MRP”), including expenses incurred for the purpose of providing its cardholders who were members of the MRP (“Members”) with rewards on the redemption of points earned by them mostly through making purchases on their cards.
Woods JA found no reversible errors in the findings of Hogan J, who in dismissing Amex’s appeal, concluded that:
- “[A]ll of the elements and components of the MRP are inherently intertwined and connected with the exempt supply of financial services made by the Appellant to its Members and merchants.” In particular, he found that Amex incurred such expenses “for the purpose of earning greater [GST/HST-exempt] merchant discount revenue in its credit card business.”
- The payments made by Amex for redeeming Members’ travel certificates thus were made in the course of making a single composite supply of exempt financial services, so that no ITCs were available under the notional ITC rule in s. 181(5).
- The free supply rule in s. 141.01(4) did not apply, as the rewards had a purpose of promoting Amex’s supply of credit rather than the activities of the merchants supplying the rewards.
In response to a submission that the $50 enrolment fees to join the MRP were not nominal, so that Amex should be characterized as making separate taxable supplies under the MRP, Woods JA found no error in the finding below that the fee was very low in comparison to the value of the MRP and, thus, insufficient to support a conclusion that Members received anything other than a single composite supply of exempt financial services.
Neal Armstrong. Summaries of Amex Bank of Canada v. Canada, 2026 FCA 31 under ETA s. 169(1), s. 181(5) and s. 141.01(4).
For CCUS ITC purposes, CRA considers that “storage” of captured carbon includes monitoring the carbon (but not exploration of the formation)
Regarding the scope of para. (c) of Class 57 (referencing “equipment that is used solely for the storage of captured carbon in a geological formation”) in relation to potentially accessing the carbon capture, utilization and storage (CCUS) investment tax credit, CRA indicated that the monitoring of the captured carbon during the storage phase would appear to be necessary and integral to storage, so that such monitoring activities could be considered part of “storage” for para. (c) purposes. “Storage” also includes the injection of the carbon dioxide.
However, it does not include exploration, including for determining the adequacy of the geological formation for storage.
Neal Armstrong. Summary of 28 October 2025 External T.I. 2025-1060891E5 under Class 57.
Income Tax Severed Letters 18 February 2026
This morning's release of seven severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Leduc – Court of Quebec states that it lacks jurisdiction to disagree with a T4 slip that the taxpayer did not try to get corrected
The taxpayer received a lump sum of $100,000 in settlement of his complaints against his former employer. The settlement agreement did not specify any allocation of the sum between different heads of damages, and he was issued a T4 for the full amount (presumably in Box 66 or 67 as a retiring allowance).
Lévesque JCQ rejected the taxpayer's position that the sum was a tax-free amount received as compensation for harassment, discrimination, and abuse of power, stating:
In the absence of a precise allocation, it is impossible to reasonably attribute a defined portion of the amount paid to "moral suffering" or to the violation of the claimant's dignity. In a global settlement, the sum is rather used to extinguish all existing disputes, without determining which portion corresponds to which element. Such a lack of precision is incompatible with the burden imposed on the taxpayer.
Before so concluding, she also stated:
It is also significant that Mr. Leduc has never taken any steps to contest the T4 slip issued by his former employer … . [I]t is the taxpayer's responsibility to have a slip corrected that he considers erroneous. Until this is done, the Court does not have the requisite jurisdiction to modify or disregard a slip issued by the employer.
It is startling that the Court might delegate the determination of the very question before it to a party (the employer) who was adverse in interest to the taxpayer. Note that this is a small claims (informal proceedings) judgment which cannot be appealed (it is only subject to judicial review) with low precedential value (see also section 563 CCP).
Neal Armstrong. Summary of Leduc v. Agence du revenu du Québec, 2025 QCCQ 9207 under s. 248(1) – retiring allowance.
Rawlings - AI-assisted individual successfully seeks judicial review of CRA refusal to let him refile a return from before the normal reassessment period
In 2005, the taxpayer filed an amended return for his 2004 that almost doubled his reported income for 2004. This was a mistake, (which he attributed to confusion resulting in part from a debilitating car accident he had suffered years before) and in 2011, he filed a further amendment, seeking to reverse the additional income inclusion, which CRA disallowed.
In 2022, the Tax Court ruled that it had no jurisdiction to require CRA to accept an amended return. In February 2023, the taxpayer again requested the amendment to his 2004 return. Although the request was submitted on the form used to request a waiver of interest, his written explanation indicated that his request was solely for CRA to allow an amendment to his 2004 tax return, as per his 2011 request.
CRA treated this as an application for relief from arrears interest, and denied that request.
The taxpayer “was unrepresented and had relied heavily on artificial intelligence to prepare his case” before Brouer J. Before referring the matter back to CRA for redetermination, Brouer J stated (at para. 21):
… Mr. Rawlings was entitled to a justified, intelligible and transparent decision that responded directly to his request, which he first made in 2011 and has continued to seek ever since. The decision under review does not meet this standard and is therefore unreasonable.
Neal Armstrong. Summary of Rawlings v. Canada (Attorney General), 2026 FC 208 under s. 152(4.2).
We have translated 7 more CRA severed letters
We have translated a further CRA ruling issued several weeks ago and 6 CRA interpretations released in November and October of 1999. Their descriptors and links appear below.
These are additions to our set of 3,484 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 26 years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
CRA rules on conventional pipeline transactions
CRA ruled on pipeline transactions respecting the preferred shares that the deceased had held in Opco (holding a rental property, portfolio investments and private company shares):
- Some of the preferred shares of Opco held by the estate are redeemed for notes (Notes 1, 2 and 3), giving rise to an eligible dividend and an s. 164(6) carryback.
- The estate transfers the balance of its preferred shares to a Newco held by a trust for the surviving children (which also holds the common shares of Opco) in consideration for a promissory note (Note 4) and some preferred shares of Newco.
- Opco repays Note 1 (to pay the taxes on the deemed dividend arising in 1 above).
- After the requisite waiting period, Newco amalgamates with Opco.
- Amalco then gradually repays Notes 2 and 3, and then Note 4.
Neal Armstrong. Summary of 2024 Ruling 2024-1029151R3 F under s. 84(2).
CRA indicates that a students residence, unlike a hotel, would constitute a rental property for purposes of the capital gains exemption in Art. 13(4) of the Canada-Germany Treaty
A single-purpose Canadian-resident corporation (Canco) owned by German residents (each with a “substantial” - at least 10% - shareholding) wholly owned Opco, which provided long-term (12-month) furnished accommodation to post-secondary students for monthly fees which included ancillary services such as for utilities, internet access, gym, a games room, lounge and patio, barbecue area, concierge service, security, a social coordinator, mail service, ice cream shop, 24-hour hotline, pancake breakfasts, and movie nights.
CRA indicated that the immovable property would not qualify as "property (other than rental property) in which the business … is carried on" for purposes of the capital gains exemption in Art. 13(4) of the Canada-Germany Treaty. It noted that there were significant differences between a student housing operation and hotels, which made the former a rental property, and stated:
Even considering the [above] services … the structure of student housing operations have the traits of a rental property in light of the use that the students make of the property as well as the purpose and the nature of the arrangement between the parties.
Neal Armstrong. Summary of 17 November 2025 External T.I. 2020-0854261E5 under Treaties – Income Tax Conventions – Art. 13.
Neal H. Armstrong editor and contributor