News of Note
CRA treats a Roth 403(b) plan as an EBP but states that withdrawals out of it could qualify for the Canada-US Treaty, Art. XVIII(1) exemption
Email this ContentThe taxpayer and her spouse, who currently reside in the United States, will immigrate to Canada upon or after retirement. They will then begin withdrawing funds from their US 403(b) plan (and the underlying Roth 403(b) account), to which the taxpayer had made after-tax contributions and (in the case of the underlying Roth 403(b) account) her spouse had made both pre-tax and after-tax contributions.
CRA stated that it “generally consider a 403(b) plan, including the Roth 403(b) account to be an EBP [employee benefit plan]”. On this basis, amounts received from the plan would be included in income under s. 6(1)(g), subject to the exclusion in s. 6(1)(g)(ii) for returns of employee contributions that have not been previously deducted.
CRA indicated that a “403(b) plan qualifies as a pension for purposes of Art. XVIII of the Treaty.” However, IRC s. 107 excludes a minister’s housing allowance from U.S. taxable income. Accordingly, distributions received from the 403(b) plan by a resident of Canada that were designated as a minister's housing allowance would not be taxable in Canada pursuant to the exclusion in Art. XVIII for amounts that would be excluded from US taxable income if received by a US resident.
Neal Armstrong. Summaries of 13 June 2023 External T.I. 2022-0952971E5 under s. 6(1)(g) and Treaties – Income Tax Conventions – Art. 18.
CRA confirms that a beneficiary receiving a return of the deceased RCA member’s non-deductible contributions cannot then generate the missing deduction under s. 60(t)
CRA confirmed that a member's contributions to a retirement compensation arrangement (RCA) that were not deductible under s. 8(1)(m.2) were not deductible under s. 60(t) by the member’s surviving spouse (or other beneficiary) who received such amounts from the RCA after the member's death and included them in income under s. 56(1)(z) or s. 70(3). This scenario did not satisfy the requirement that the deduction was only available to the taxpayer who had made the contributions (not the surviving spouse).
Neal Armstrong. Summary of 30 May 2025 External T.I. 2022-0931461E5 under s. 60(t).
CRA confirms that a “qualified clean hydrogen project” must be expected to be operational for at least 20 years
CRA confirmed that a “clean hydrogen project” cannot qualify as a “qualified clean hydrogen project” where it is expected to be operational for less than 20 years, given that the Guidance Document used by NRCan requires the use of cumulative data representing the first 20 years of operation of the clean hydrogen project in determining expected carbon intensity.
Neal Armstrong. Summary of 20 November 2025 External T.I. 2025-1078901E5 under s. 127.48(6)(n).
CRA indicates that the covered worker requirements extend to their installation of a concrete foundation to support substantial CCUS equipment
In order to support a substantial piece of equipment described in Class 57(a) in respect of a carbon capture utilization and storage (CCUS) project, Canco will construct a concrete foundation, including the excavation of a hole, the installation of pilings, and the pouring of concrete. The CRA found that this foundation would qualify under Class 57(f) as a structure, substantially all of which was used in the installation of Class 57(a) equipment, so that the foundation would itself be a specified property as defined in s. 127.46(1).
Accordingly, if Canco had elected to meet the labour requirements under s. 127.46(2) (e.g., meeting prevailing union rates) so as not to have the maximum ITC rates reduced, those labour requirements would extend to the above installation work for the foundation.
Neal Armstrong. Summary of 25 February 2026 External T.I. 2025-1081921E5 under Class 57(f) and s. 127.46(1) – covered worker – (a).
We have translated 5 more CRA interpretations
We have translated a further 5 CRA interpretations released in July and June of 1999. Their descriptors and links appear below.
These are additions to our set of 3,524 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 ½ years of releases of such items by the Directorate. These translations are subject to our paywall (applicable after the 5th of each month).
Jewish National Fund - Federal Court of Appeal states that an allegation of CRA bias must be based on a tangible concern based on potentially credible evidence
The Jewish National Fund of Canada sought to set aside the Minister's decision to revoke its status as a registered charity, alleging inter alia that such decision was tainted by bias, relating to a weighty and illegitimate pressure campaign against it.
It moved for an order allowing its appeal on the basis that the Minister had disobeyed some of the search terms in the June 10, 2025 order of the Court, which required a supplementary search of CRA's records, including records of the Charities Directorate, to ensure the disclosure of, among other documents, any further materials within CRA's possession that were not included in the certified tribunal record and that were “in respect of the allegation that the Minister was biased,” including any “relevant material” in the possession of CRA “relating to communications from and to the public”.
Stratas JA indicated that the Court could make a search and production order where there is an “air of reality” to an allegation of maladministration, i.e., ”a tangible concern supported by some circumstantial or direct evidence” that is “capable of being believed” and there was proportionality, as assessed by the court, between the time, expense and court resources involved in carrying out the order and the importance of the matters at stake. He did not comment directly on the vagueness of the “materials … in respect of the allegation … [of] bias …” criterion in the order, but stated: “Regardless of whether it was issued in accordance with the principles set out in these reasons, it must be followed.”
Stratas JA found that the Minister's conduct (described below) did not warrant granting the appeal, as there was “no egregious conduct amounting to a serious abuse of process where no remedies will do”. However, the Fund persuaded him that the Minister had not fully complied with the Court's June 10, 2025 order:
- The Fund’s cross-examination of the CRA affiant indicated that she did not address a supplementary search request to any of the Tax and Charities Appeals Directorate, the Public Affairs Branch, the National Leads Centre, the Commissioner's Office, the Deputy Commissioner's Office, or the Minister's Office, and it was plausible that these departments might possess relevant documents.
- The Fund, in its prior motion for search and production, had referred to an email chain discussing a potential meeting between the Commissioner and another senior employee regarding the Fund's case. While the Minister had directed the participants in the chain to search for records of this meeting, no such request was made of the Commissioner or any other purported attendee of the meeting and it should now do so.
- The affiant testified that CRA's standard practices for searches had been followed but was unable to describe those practices or confirm that they had indeed been followed.
Accordingly, the Minister was ordered to conduct a further search for certain documents, confirm the adequacy of certain previous searches, and provide a further affidavit detailing the nature and scope of the searches conducted, with the Fund to be granted the opportunity to cross-examine on this affidavit.
Neal Armstrong. Summary of Jewish National Fund of Canada Inc. v. Canada (National Revenue), 2026 FCA 63 under Rule 317.
CRA declines to pronounce on whether a mortgage investment corporation would be a listed financial institution for FATCA and CRS purposes
Regarding whether a mortgage investment corporation (MIC) was a listed financial institution as defined in s. 263(1) (which is relevant for both FATCA and CRS reporting purposes), CRA first indicated that mortgages would generally be considered “financial instruments” and “financial assets”.
The MIC could be a listed financial institution under:
- para. (j) of the definition in s. 263(1) if it was authorized under provincial legislation to engage in the business of dealing in securities or other financial instruments, or to provide portfolio management, investment advising, fund administration, or fund management services; and
- under para. (k) thereof if it was managed by such an entity and was represented or promoted to the public as a collective investment vehicle or as a similar investment vehicle established to invest in financial assets.
CRA indicated that whether the definition would so apply was a question of fact.
Neal Armstrong. Summary of 12 November 2025 Internal T.I. 2022-0955411I7 - Application of Parts XVIII and XIX to MICs under s. 263(1) - listed financial institution - (k).
CRA adds 3 examples to its listing of abusive transactions including a blanket treaty-shopping example
A CRA webpage providing examples of transactions to which it would apply GAAR, has been updated by adding three examples (briefly summarized below):
Wuswig-based transaction
After Canco received exempt dividends from a foreign affiliate (Subco), Subco continues into Canada, the parent of Canco subscribes for preferred shares of Subco, and Subco is wound up under s. 88(2) to trigger a capital loss to Canco that is not subject to the stop-loss rules in ss. 93(2) and 93(2.01).
Treaty shopping)
A person who is not entitled to the benefits of a tax treaty uses an intermediary entity entitled to such benefits to indirectly obtain those benefits, resulting in a reduction of the amount of withholding tax otherwise payable under Part XIII.
Before giving the example quoted above (and without referencing Alta Energy), CRA stated that it “may apply the GAAR even where a non-resident would otherwise satisfy all of a treaty’s relevant provisions, including … limitation on benefits provisions and, any other anti-avoidance provision, including the principal purpose test in Article 7(1)” of the MLI.
Loss trading, Deans Knight style
CRA essentially summarized the facts in Deans Knight, and further stated that it “will consider the application of the GAAR to transactions or arrangements designed to avoid the restriction of non-capital loss carryovers for a corporation (Lossco) that would arise on an acquisition of control by a person or a group of persons (notwithstanding the composition of such group).”
Neal Armstrong. Summary of CRA Webpage, General anti-avoidance rule (GAAR), 1 April 2026 under s. 245(4).
Income Tax Severed Letters 1 April 2026
This morning's release of six severed letters from the Income Tax Rulings Directorate is now available for your viewing.
CRA amends Folio S5-F2-C1 to permit disproportionate treaty-based claims for foreign partnership taxes
Today, CRA made some additions and changes to Folio S5-F2-C1, Foreign Tax Credit. One addition related to determining the amount of tax paid by a foreign partnership that should be treated as having been paid by a resident partner for foreign tax credit purposes.
Para. 1.39 continues to state:
The taxpayer's appropriate share of the foreign taxes paid is generally the same proportion of the total foreign taxes as the taxpayer's share of income is to the total income of the partnership.
However, CRA has now added para. 1.39.01, which states:
However, in certain circumstances a partner's share of the total tax paid by a partnership may be calculated differently. Where the amount of foreign tax is computed at the partnership level by reference to each member’s treaty entitlement and the particular partnership agreement adjusts the income allocation, the taxpayer’s pro rata share of the foreign taxes payable by the partnership is the partner’s pro rata share of the taxes that would be owing without taking the treaty into account, less the reduction attributable to the particular partner’s treaty entitlement.
CRA also added para. 1.45.1, which states that in the above situation, the documentary support “should demonstrate that the sum of the amounts of foreign tax considered to be paid by each member of the partnership does not exceed the total amount of foreign tax actually paid by the partnership.”
Neal Armstrong. Additional summary of Folio S5-F2-C1 - Foreign Tax Credit under s. 126(1).
Neal H. Armstrong editor and contributor