Insights from the 2025 CRA Roundtable

At the 2025 CTF Annual Tax Conference, during their annual 2025 roundtable (the “2025 Roundtable”) the Canada Revenue Agency (the “CRA”) answered questions regarding its current administrative views and practices. This blog provides an overview of certain key takeaways from the 2025 Roundtable.

Expanding the scope of advance tax rulings (Question #13)

For many years, the CRA has been providing advance income tax rulings “confirming how the CRA’s interpretation of specific provisions of Canadian income tax law applies to a definite transaction or transactions that a taxpayer is contemplating.” Tax professionals often request such rulings when there is a desire for express comfort from the CRA on the expected tax treatment of a given series of transactions.

As outlined in paragraph 19.1 of Information Circular IC70-6R12 (the “Circular”), the CRA generally does not issue rulings that are conditional on the existence of facts – especially where those facts must be inferred from surrounding circumstances. However, the CRA does issue rulings that primarily involve factual determinations where the CRA receives a complete, accurate and detailed description of the supporting facts and evidence; for example, rulings are regularly issued on topics such as the potential application of subsection 55(2) of the federal Income Tax Act (the “Act”) and the general anti-avoidance rule (GAAR) in section 245 of the Act.

At the 2025 Roundtable, the CRA was asked whether, given the growing complexity of tax measures and need for upfront certainty, it would consider broadening the scope of its rulings in cases where the taxpayer can substantiate relevant facts or intentions with credible documentation. In response, the CRA said it would “explore opportunities” to provide more factually-intensive rulings within the parameters outlined in the Circular. The CRA provided the following non-exhaustive list of subject matters where it may be willing to issue a ruling:

• transactions and arrangements involving crypto assets;
• certain issues involving capital gain exemptions;
• whether certain expenditures qualify as “Canadian exploration expenditures”;
• whether certain per capita distributions made by an Indian Band to members constitute income from a source;
• whether certain distributions made by a tax-exempt non-profit organization could result in the loss of its tax-exempt status;
• whether an organization is organized to qualify as a non-profit organization; and
• whether paragraph 149(1.2) of the Act applies to allow an entity earning certain income outside its geographical boundaries to retain its tax-exempt status.

Even if the CRA expands the scope of its advance tax rulings, the CRA confirmed that the binding portion of any ruling will be limited to its legal interpretations and not to the factual circumstances. The CRA also said it retains discretion to decline a ruling request – even if it falls within the above-mentioned categories – where credible supporting documentation is not provided.

Application of intergenerational business transfer rules upon divorce (Question #5)

Section 84.1 of the Act is a provision designed to prevent tax-free “surplus stripping” in a non-arm’s-length transaction. The section has historically created challenges for business owners who wish to transfer the business to their children, since it may convert what would otherwise be a tax-free capital gain into a deemed dividend.

To mitigate those challenges, Parliament recently introduced new intergenerational business transfer (“IBT”) rules which seek to facilitate the intergenerational transfer of a business without triggering section 84.1. Generally, under those rules, an IBT can occur either “immediately” (within three years) or “gradually” (over five to ten years). In both cases, two control tests (among other requirements) must be satisfied:

1. at the time of disposition, the purchaser corporation must be controlled by one or more of the taxpayer’s children (the “Disposition Test”); and

2. the child or “group of children” must maintain control from the time of disposition throughout a specified period (36 months for immediate transfers and up to 10 years for gradual transfers) (the “Specified Period Test”).

For these purposes, the definition of “child” includes a spouse or common-law partner of the taxpayer’s child (see paragraph 84.1(2.3)(a), subsection 70(10), and paragraph 252(1)(e) of the Act).

At the 2025 Roundtable, the CRA was asked whether the Specified Period Test would be satisfied where a child and their spouse jointly controlled the purchaser corporation at the time of disposition, but divorced during the specified period. The noted concern was around the spouse ceasing to be a “child” of the original transferor at the time of divorce.

The CRA opined that although a person may cease to be a “child” of the taxpayer upon the termination of a marriage or common-law partnership, their status as a “child” throughout the specified period is not material. In particular, the Specified Period Test focuses on the persons who controlled the target at the time of disposition regardless of their status; only the Disposition Test considers whether those persons were each a “child” of the transferor for the purposes of the IBT Rules.

Therefore, if a child’s spouse (who was a member of a “group of children” that controlled the corporation at the time of disposition) ceases to be a “child” of the taxpayer due to divorce, the Specified Period Test may still be satisfied – provided the same group of persons continues to control the corporation throughout the specified period. Of note, even where the same group of persons does not control the corporation throughout the specified period, there are certain interpretive rules in subsection 84.1(2.3) that may deem the Specified Period test to have been met.

This interpretation should provide comfort for families planning an IBT that even if family dynamics change post-disposition, the favourable treatment afforded under the new rules may still be available.

Affiliation of trust beneficiaries and corporation controlled by the trust (Question #8)

Section 251.1 of the Act determines when taxpayers are affiliated with one another for purposes of the Act. Those rules are particularly relevant when a taxpayer realizes a loss, since affiliation can result in the deferral or denial of that loss.

At the 2025 Roundtable, the CRA was asked whether a majority interest beneficiary (“MIB”) of a discretionary trust (the “Trust”) would be affiliated with a corporation controlled by the Trust. The question involved three scenarios:

1. All the voting shares of the corporation are held by the Trust.

2. The MIB holds 20% of the voting shares of the corporation and the Trust holds the remaining voting shares.

3. In each of the above scenarios, the MIB serves as trustee and can control the Trust property.

Under the affiliated persons rules in the Act, a corporation is affiliated with any person, or each member of an “affiliated group of persons”, by which the corporation is controlled. An “affiliated group of persons” is defined in subsection 251.1(3) as a “group of persons” each member of which is affiliated with every other member.

As defined in subsection 251.1(3), a MIB is a beneficiary that, together with all persons affiliated with that beneficiary, holds either an income interest or a capital interest having a fair market value in excess of 50% of the fair market value of all income interests or all capital interests in that trust.  Pursuant to subparagraph 251.1(4)(d)(i), for the purposes of the affiliated party rules, if the amount of income or capital that a beneficiary may receive under the trust is subject to the discretionary power of any person, that person is deemed to have fully exercised that power in favour of the beneficiary. In addition, a MIB of a discretionary trust is affiliated with that trust under subparagraph 251.1(1)(g)(i), and therefore a trust and any MIB thereof form an “affiliated group of persons”.

The CRA concluded that in all three scenarios, the MIB would not be affiliated with the corporation. This conclusion rested on two key principles:

1. First, the CRA cited Southside Car Market Ltd. v. The Queen, (FCTD) 82 DTC 6179, for the principle that if a single person has de jure control over a company, a “group of persons” cannot also have de jure control. Further, the CRA said that unlike other areas of the Act, section 251.1 does not override that common law rule by allowing simultaneous control by multiple persons or groups.

2. Second, paragraph 251.1(4)(c) specifies that for purposes of the affiliated person rules, a reference to a trust does not include a reference to its trustee or persons who control trust property. Therefore, even where the MIB acts as a trustee, the corporation is controlled by the Trust alone for purposes of the affiliation rules.

In all three 2025 Roundtable scenarios, the Trust held enough voting shares to elect a majority of the board and, thus, had de jure control. Therefore, having regard to the above principles, the CRA concluded that the beneficiary could not also be considered to control the company and that the MIB and the Trust would not be considered a “group of persons” controlling the corporation. For those reasons, the CRA concluded the MIB would not be affiliated with the corporation.

Notwithstanding that conclusion, “control” is defined for the purposes of the affiliation rules to include both de jure and de facto control. The CRA only considered the exercise of de jure control (since de facto control was assumed away in the question). For practitioners broadly, however, de facto control must be independently assessed to determine whether any particular persons are affiliated with one another.

In sum, the CRA’s analysis means that where a trust alone exercises de jure control over a corporation, and a MIB does not exercise de facto control, the MIB should not be considered affiliated with the corporation. This applies even if the MIB has a non-controlling shareholding in the corporation or is a trustee of the Trust.

T1134 reporting for partnerships (Question #4)

Pursuant to subsection 233.4(4) of the Act, partnerships and Canadian-resident taxpayers that qualify as a “reporting entity” within the meaning of subsection 233.4(1) are required to file a T1134 information return in respect of their foreign affiliates. On an administrative basis, the CRA allows entities forming a “group of reporting entities that are related to each other” to file a single consolidated T1134 reporting all of the foreign affiliates for which any member of the group would otherwise be required to file a T1134. Such relief is outlined in the T1134 Form, which specifies that to be part of the “group of reporting entities that are related to each other”, the entities must:

1. belong to the same “related group”, as defined in subsection 251(4) of the Act;

2. share the same year-end; and

3. report in Canadian currency or the same functional currency.

In that regard, a “related group” is defined in subsection 251(4) of the Act as a “group of persons each member of which is related to every other member in the group”. A partnership is, generally, not regarded as a “person” under the Act. Accordingly, the CRA was asked at the 2025 Roundtable how partnerships would fit within its administrative position.

In reply, the CRA reaffirmed that, although a partnership is only considered a “person” under the Act in limited circumstances, the administrative relief for the T1134 form extends to a partnership where at least one of its partners is related to each other member of a related group in respect of the same foreign affiliate. This requirement can be met even in tiered partnership structures, provided that one partner of the top-tier partnership is related to all other relevant reporting entities.

If there is uncertainty regarding a partnership’s inclusion, the CRA suggested including the partnership in the consolidated T1134 return as a member of the related group to ensure its reporting obligations are met.