Principal Issues: Would, (1) recaptured depreciation under subsection 13(1) of the Act; (2) investments tax credits included in income under paragraphs 12(1)(t) and (v) of the Act; and, (3) charitable donations and political contributions, be included/deducted in determining the income from production and/or processing under subsection 1204 of the Regulations.
Position: (1) and (2): Yes. (3): No
Reasons: A taxpayer's income from the year from a business is the taxpayer's profit determined by Division B of the Act, which includes amounts determined under subsection 13(1) of the Act, and paragraphs 12(1)(v) and (t) of the Act. The recapture provisions of the Act and Regulations are fundamentally adjustments to income of previous years and do not create, in the year of disposal of the asset, some new form or source of income. A recapture of depreciation, to the extent the recapture is in respect of capital cost allowance claimed in computing gross resource profits in prior years, would be included in gross resource profits. Using the same reasoning, an amount under 12(1)(v) that arose due to investments tax credits included under paragraph 37(1)(e), would be included in computing gross resource profits. Amounts determined under paragraphs 12(1)(t) would be included in the taxpayer's income for the year from production and/or processing in computing gross resource profits, to the extent that the amounts are in respect of SR and ED amounts that were deducted under subsection 37(1) of the Act in computing gross resource profits in prior years.
Deductions for charitable donations and political contributions are not deductions in computing income from a business, but, rather, are deductions made in computing taxable income or are deductions from taxes otherwise payable. Since they are not deductions in computing income from a business, they cannot be deducted in calculating gross resource profits or resource profits for resource allowance purposes.