28 April 1997 Ministerial Correspondence 9705394 - comparative table-judges appointed in 94, 95, 96

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

ADM'S OFFICE (2) ADM 970207
RETURN TO 15TH FLOOR, ALBION TOWER

April 28, 1997

XXXXXXXXXX

Dear XXXXXXXXXX:

This is in response to your letter dated January 16, 1997, concerning the tax treatment of the income of lawyers appointed to the Bench in 1996.

Generally, an individual that ceases to carry on a business during the 1996 taxation year may deduct a reserve in respect of "December 31, 1995 income" at the end of this 1996 taxation year. However, the amount of the reserve claimed in 1996 must be included in the computation of the individual's income for the 1997 taxation year while no new reserve in respect of December 31, 1995 income may be claimed in 1997. The term "December 31, 1995 income" is defined in section 34.2 of the Income Tax Act and relates to the deferral of income available on the conversion to a calendar year reporting of business income.

For your information, you will find enclosed a comparative table of the tax situation of a lawyer appointed to the Bench during 1994, 1995 or 1996.

In your letter, you mentioned that lawyers appointed to the Bench should not be penalized from a tax perspective because of their appointment, and you inquired as to whether Revenue Canada has some discretion in that respect that would allow a rectification of the situation.

I understand your concerns, however the Income Tax Act is very precise with respect to the availability of a deferral of income under this provision. These rules apply to all individuals and do not confer any latitude to the Minister in regard to their application.

I trust that the above information will be of assistance to you.

		Yours sincerely,

		Denis Lefebvre
		Assistant Deputy Minister
		Policy and Legislation Branch

Attachments

Roxane Brazeau-LeBlond
957-2131
March 10, 1997

COMPARATIVE TABLE
TAX CONSEQUENCES
LAWYER APPOINTED TO THE BENCH ON APRIL 1, 1994, 1995 OR 1996

Assumptions:

• Lawyer is self-employed
• Financial year end: January 31
• Professional income is $15,000 per month, $180,000 per year
• Salary as a judge: $10,000 per month, $120,000 per year

Tax consequences

A- Appointment on April 1, 1994

Taxation year	1994		1995

Salary (9 months - 12 months)	$90,000		$120,000

Professional income
31-01-94 : $180,000
Section 24.1 election	$45,000		$135,000

Professional income
01-02 to 31-03-94 : $30,000
Section 25 election	    -    		$30,000

Total income	$135,000		$285,000

$420,000

B- Appointment on April 1, 1995

Taxation year	1995		1996

Salary (9 months - 12 months)	$90,000		$120,000

Professional income
31-01-95 : $180,000
Section 24.1 election	$45,000		$135,000

Professional income
01-02 to 31-03-95 : $30,000
Section 25 election	$30,000		      -

B- Appointment on April 1, 1995 (cont'd)

Amount to be included
34.1 and 34.1(8)(a)	-		-

Reserve - 34.2(4)
95% x $30,000	($28,500)		-

Reserve to be included
34.2(5)	    -    		 $28,500

Total income	$136,500		$283,500

$420,000

C- Appointment on April 1, 1996

Taxation year	1995	1996		1997

Salary	-	$90,000		$120,000

Professional income
31-01	$180,000	$180,000		-

Amount to be included
34.1(1)
334/365 x $180,000	$164,712	-		-

Amount to be deducted
34.1(3) 	-	($164,712)		-

Reserve - 34.2(4)
95% x $164,712	($156,476)	-		-
85% x $164,712	-	($140,005)		-

Reserve to be included
34.2(5)	-	$156,476		$140,005

Professional income
01-02 to 31-03-96	-	$30,000		    -    

Total income		$151,759 $		$260,005

				$411,764