CRA appears to accept that a s. 20(1)(m) reserve can be claimed for an amount included under s. 9 rather than 12(1)(a)

A distributor receives a payment from the manufacturer in consideration for a somewhat diffuse obligation to participate in stipulated marketing activities over the following eight years. Is there an immediate income inclusion, or can it recognize the income over eight years?

CRA indicated that if the amount was received "free of conditions or restrictions respecting its use from the commencement of the contract," it would be included in income under s. 9, and if instead the "acts and obligations which the distributor corporation had to accomplish after the end of the taxation year were sufficiently significant to reach a conclusion that the sum was not earned in that year," then it "could" be included in income under s. 12(1)(a). CRA then stated:

[A]n amount included in the computation of income [under s. 9] by virtue of the realization principle could also come within paragraph 12(1)(a). In such a case and subject to subsection 20(7), the distributor corporation could have the right to deduct a reasonable amount as a reserve if the situation was described in one of subparagraphs 20(1)(m)(i) to (iv).

This indication that an income inclusion under s. 9 might also be regarded as occurring under s 12(1)(a) (in which case a reserve would be available for related future services to be rendered) appears to be an implicit rejection of Burrard Yarrows (suggesting that if income was included under s. 9, no s. 20(1)(m) reserve was available) and an implicit acceptance of Doteasy and Ellis Vision (taking the opposite approach).

Neal Armstrong. Q.9 of 9 October 2015 APFF Roundtable under APFF Roundtable.