30 March 1998 External T.I. 9730805 - ENTITLED TO RECEIVE

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.

		973080
XXXXXXXXXX	B. Kerr

Attention: XXXXXXXXXX

March 30, 1998

Dear Sirs:

Re: Application of Paragraph 13(7.1)(f) of the Income Tax Act (the "Act")

This is in response to your letter of September 11, 1997, faxed to us on November 19, 1997, concerning the reduction of the capital cost of property under the provisions of paragraph 13(7.1)(f) of the Act.

You have described a situation where a taxpayer enters into an upfront arrangement in which he becomes entitled at some time in the future to receive amounts of assistance over a period of years from a government in respect of a current acquisition of depreciable property. You have asked us whether the entire amount of the entitlement receivable in the future would be applied to reduce current capital cost of the acquired depreciable property or whether the cost of the depreciable property would be reduced over time when the assistance payments are received.

Our Comments

As stated in paragraph 10 of Interpretation Bulletin IT-273R, government assistance is often paid to a taxpayer in a year subsequent to that of acquisition of property for which the assistance is paid. If a taxpayer has not received and is not entitled to receive, any assistance in the year in which depreciable property was acquired, he may claim capital cost allowance based on the cost of the property to him without making any deduction under subsection 13(7.1). The amount of the assistance that a taxpayer receives or is entitled to receive in a subsequent year is deducted from the capital cost of the property for that and subsequent years, but not for any year prior to that in which the assistance was made.It will be a question of fact whether and when a taxpayer is "entitled to receive" certain government assistance for the purposes of subsection 13(7.1) of the Act. Since the Act does not specify the point in time at which such entitlement arises, this determination will be based upon the appropriate meaning to be assigned that phrase and the terms of the agreement relevant to a particular situation.

Black's Law Dictionary , 6th edition, provides the following definitions for "entitle" and "entitlement":

Entitle. In its usual sense, to entitle is to give a right or legal title to...To qualify for, to furnish with proper grounds for seeking or claiming...

Entitlement. Right to benefits, income or property which may not be abridged without due process.

In the Dictionary of Canadian Law, 1991, Carswell, the meaning provided for "entitle" is "to bestow a right".

We are not aware of any jurisprudence involving the phrase "entitled to receive" in the context of subsection 13(7.1) of the Act. However, the phrase was considered in the Central Supply Company (95 DTC 434) case where the court noted, that section 4 of the Petroleum Incentives Act indicated in part that:

"the applicant is... entitled on the requisition of the Minister to an incentive in the amount determined in accordance with..."

The Court concluded:

"Although no evidence was produced with respect to the procedure followed by the PIA, it would be surprising that monies would be paid by the government of Canada to an Applicant...without requisition therefor being made by some responsible authorized person....I agree with the Appellants' counsel that the phrase "on the requisition of the Minister" has no meaning if the Respondent's argument that payment of incentives is automatic after approval is obtained, is accepted."

In the Oscar Forward case (91 DTC 1255) dealing with the phrase "entitled to a deduction" the court looked to the following definition of "entitle":

The verb "entitle", the present tense of "entitled", is defined by the Shorter Oxford English Dictionary on Historical Principles...as...to furnish with a title to an estate. Hence gen. to give a rightful claim to anything..."

Accordingly, in our view for a taxpayer to be "entitled to receive" a particular amount all of the pre-conditions to a "right" to receive same must have been satisfied. As already stated, this determination is to be made based upon the express wording of the legislation, agreements, etc. relevant to a particular situation.

We trust that these comments will be of assistance.

Yours truly,

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch