News of Note
CRA rules that the financing cost embedded in receiving a prepayment of the forward price under a forward constituted IFE
Email this ContentOn the trade date, the taxpayer entered into agreements for the forward sale of a commodity, which required physical delivery on a monthly basis and, on such trade date, received a prepayment of the forward prices payable under the forward sale agreement. On each monthly delivery date, the taxpayer purchased the commodity from its subsidiaries at the current spot price and, due to an appreciation in the spot price, realized a loss for the difference between the spot price and the prepayment amount, which consisted of two components:
- the difference between the spot price and the forward price (the “Sale Loss”); and
- the difference between the prepayment amount and the forward price (the “Financing Cost Loss”).
CRA ruled that:
- the Financing Cost Losses constituted “interest and financing expenses” (“IFE”) under the s. 18.2(1) definition thereof; and
- the Sale Losses were not amounts described in A(e) of the IFE definition and, therefore, were not included in the taxpayer's IFE.
Neal Armstrong. Summary of 2025 Ruling 2025-1063831R3 under s. 18.2(1) – IFE.
CRA indicates that s. 50(1) elections must be made on a debt-by-debt basis
CRA stated that, since whether a debt has become uncollectible is a factual determination respecting each debt, the “election provided for in subsection 50(1) must therefore be made separately for each debt.” S. 33(2) of the Interpretation Act (“the singular include[s] the plural”), was not discussed.
However, CRA indicated that the election must be made by attaching a signed letter to the return, and that “there appears to be nothing in the legislation to prevent several separate elections, for each of the debts in question, from being set out in a single letter.” Effectively, CRA seems to be saying that a single s. 50(1) election letter can be attached for a multitude of debts, provided that they are listed.
Neal Armstrong. Summary of 1 April 2026 Internal T.I. 2025-1050651I7 F under s. 50(1).
Income Tax Severed Letters 26 August 2026
This morning's release of four severed letters from the Income Tax Rulings Directorate is now available for your viewing.
Knights Developments – UK Upper Tribunal finds that profits from the sale of developed land constituted income from immovable property for Treaty purposes
The taxpayer (KDL) was a resident of the Isle of Man that used the development and marketing services of a related Isle of Man company to carry on a land development and trading business in the UK. Art. 6 of the UK–Isle of Man arrangement for the avoidance of double taxation (the “2018 DTA”) provided (along the OECD Model lines):
1. Income derived by a resident of a Territory from immovable property (including income from agriculture or forestry) situated in the other Territory may be taxed in that other Territory. …
3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting, or use in any other form of immovable property.
Unlike the Canada–UK Treaty, Art. 6(3) did not expressly include profits from the alienation of immovable property.
KDL’s position was that Art. 6 was concerned only with income derived from the use or exploitation of land, and that this category of income was dealt with exhaustively by Art. 6(3), which referred to income derived for the purposes of Art. 6(1) and did not include profits from the sale of land that involved no continuing use or exploitation. Accordingly, its profits from its UK land sales fell outside Art. 6 and (as it did not have a UK permanent establishment) also were not captured by Art. 7.
The Tribunal rejected this submission, stating:
Our conclusion follows principally from the language and structure of Article 6 itself. The natural meaning of "income derived from immovable property" is sufficiently broad to encompass income which arises directly from the ownership, development and sale of the immovable property in question, and nothing in Article 6(3) requires Article 6(1) to be confined to income generated during a period of continuing ownership. We do not agree that the OECD Commentary, the reservation practice [in, e.g., the Canada treaty], or the reasoning in RBC establishes the narrower "use versus alienation" distinction for which the Appellant contends. … That interpretation is also consistent with the broader context and purpose of the arrangements and avoids what would otherwise be a striking exclusion from source-state taxation of a particular category of income derived from United Kingdom immovable property.
In obiter it indicated that if, contrary to this conclusion, Art. 6(1) did not itself extend to the profits in issue and therefore Art. 6(3) assumed determinative importance, KDL’s activities nonetheless would fall within Art. 6. It stated:
The Appellant's analysis places undue emphasis upon the final act of sale. …
A property development trade involves substantially more than the passive holding of land pending disposal. The land is employed, altered, improved and commercially deployed in order to generate profit. In ordinary language, that constitutes a form of use.
The Tribunal also went on to state, obiter, that, contrary to the HMRC submission, Art. 13 of the 2018 DTA dealt only with capital gains (notwithstanding that it referred instead to “gains”) having regard to the overall structure of the 2018 DTA.
Neal Armstrong. Summary of Knights Developments Ltd v Revenue and Customs [2026] UKUT 329 under Treaties – Income Tax Conventions – Art. 6.
Emamifar – Federal Court of Appeal finds that a failure to fulfil a commitment to report a return to work while collecting mat leave EI benefits was not a “misrepresentation”
After providing in s. 52(1) of the Employment Insurance Act for the right of the Canada Employment Commission to reconsider an EI claim within 36 months of the payment of the related benefits, s. 52(5) extends this reconsideration period:
If, in the opinion of the Commission, a false or misleading statement or representation has been made in connection with a claim, the Commission has 72 months within which to reconsider the claim.
The applicant elected to take mat leave of 18 rather than 12 months. In her application, in order to be relieved of the obligation to provide bi-weekly reports (essentially certifying that she was still not working), she provided the requested up-front certification that she would inform the Commission if her work resumed during the 18 months - and, indeed, she expected to be on mat leave for the full 18 months. However, at the 12-month point, her circumstances had changed and she recommenced working, without informing the Commission. She considered her receipt over 18 months of benefits, approximating what she effectively could otherwise have elected to receive over 12 months, to be fair.
Heckman JA found no reviewable error in the finding below that the applicant’s failure (referenced as an “omission”) to inform the Commission did not amount to a “representation” to which s. 52(5) could apply. Accordingly, the Commission was out of time in trying to recoup, beyond the 36-month point, the last six months of benefits.
This case is consistent with the jurisprudence on ITA s. 152(4)(a)(i) that the identification of a misrepresentation attributable to neglect etc. must be made in relation to the state of affairs at the time of the return-filing. (See, e.g., Vachon, at para. 7.)
H/t Joel Nitikman for noticing this EI case.
Neal Armstrong. Summary of Canada (Attorney General) v. Emamifar, 2026 FCA 141 under s. 152(4)(a)(i) and Statutory Interpretation – Implied Exclusion.
GST/HST Severed Letters May 2025
This morning's release of five severed letters from the Excise and GST/HST Rulings Directorate (identified by them as their May 2025 release) is now available for your viewing.
The extension of the normal reassessment period on seeking judicial review of a CRA notice of non-compliance may coerce taxpayers into not challenging unreasonable demands
The apparent effect of the revised proposals under Bill C-31 respecting the issuance by the Minister of a notice of non-compliance (“NONC”) regarding an information demand made under s. 231.1 is to provide, by virtue of draft ss. 231.8(1)(f) and 231.9(10), for an extension of the normal reassessment period (“NRP”) by the period in which a NONC is under judicial review, regardless of the outcome of that review. In contrast, where the NONC is vacated on internal Ministerial review, no comparable extension of the NRP applies.
A taxpayer considering whether to challenge an unreasonable NONC must now weigh the extension of the reassessment period, resulting from the initiation of judicial review, for the duration of the ensuing litigation, which may have the effect of encouraging taxpayers to provide information to the CRA in compliance with an unreasonable NONC.
Neal Armstrong. Summary of Ziyad Zeidan, Isabel Caguioa, and Sumayya Kheireddine, “Notices of Non-Compliance, Judicial Review, and the Reassessment Clock,” Canadian Tax Focus, Vol. 16, No. 1, p. 3, August 2026 under s. 231.9(10).
CRA indicates that there is no relief where an RCA generates accrued interest on a stripped bond without any cash receipt to cover the refundable tax
CRA confirmed that where an RCA held a stripped bond, the accrued interest required to be recognized annually pursuant to Reg. 7000(2)(b) and s. 12(4) on an anniversary-date basis would ceteris paribus result in refundable tax that would be required to be paid for each year under s. s. 207.7(1) even though no cash was being generated to pay the tax. If a contribution was made to pay the tax, this would add to the amount of refundable tax (under s. 207.5(1) – refundable tax – (a)) to be paid, and if the contribution was later returned, it would be taxable under s. 56(1)(x) or (z).
Neal Armstrong. Summary of 4 June 2026 External T.I. 2023-0991701E5 under s. 207.5(1) – refundable tax.
CRA provides an opinion on the application of s. 214(15)(c) to creditor consent fees
CRA has issued rulings respecting a situation where a Canadian corporate issuer had issued Canadian and U.S. dollar-denominated bonds and notes to arm's length lenders (the “debtholders”), and used the proceeds to invest in “mirror loans” (i.e., with substantially the same terms) issued by an affiliated limited partnership (LP).
The proposed transactions entailed minor amendments to the terms of the mirror loans, followed by their distribution to the debtholders in full satisfaction of the amounts owing to them under the bonds and notes.
The various rulings included a ruling on how s. 39(2) should be applied to the issuer respecting its settlement of the U.S.-dollar notes if there was a forgiven amount arising on such settlement, as determined based on the FMV of the mirror loans transferred in satisfaction of those notes (see the discussion at 13 May 2026 IFA Roundtable Q. 5, 2025-1078201C6).
CRA also issued an opinion based on what then was a draft version of s. 214(15)(c) (respecting restructuring and rescheduling fees) that consent fees paid to the debtholders would be deemed to be interest, so that s. 212(1)(i) would not apply and so there would be no withholding tax on such deemed interest.
Neal Armstrong. Summary of 2025 Ruling 2024-1002911R3 under s. 39(2).
CRA indicates that the advantage rules apply where in substance annuitants have transferred employment income to their RRSP under a mortgage loan by it to them
S. (b)(ii)(A) of the definition of “advantage” in s. 207.01(1) refers to a benefit that is an increase in the total FMV of the property held in connection with an RRSP if it is reasonable to consider, having regard to all the circumstances, that the increase is attributable, directly or indirectly, to a payment received as, on account or in lieu of, or in satisfaction of, a payment for services provided by a person who is, or who does not deal at arm’s length with, the controlling individual of the registered plan. Regarding whether the borrowing by the controlling individual of an RRSP under a mortgage loan from that RRSP on commercial terms substantially similar to those between Canadian arm's length parties results in an “advantage” pursuant to s. 207.01(1)(b)(ii)(A) of the definition thereof. CRA stated:
Subparagraph (b)(ii) of the definition of “advantage” in subsection 207.01(1) targets arrangements that attempt to artificially shift otherwise taxable amounts into a registered plan. For example, where employment income of a controlling individual of an RRSP is replaced or the quantum of such employment income is reduced, there may be an artificial shift of taxable income into the RRSP. In determining whether a payment to a registered plan has been received in substitution for a payment for services rendered, the economic substance of the related transactions regardless of their legal form have to be considered.
Neal Armstrong. Summaries of 1 June 2026 External T.I. 2023-1001921E5 under s. 207.01(1) – advantage – (b)(ii)(A), (b)(i).
Neal H. Armstrong editor and contributor