CRA finds that an appraisal increment increased a corporation’s retained earnings for Part I.3 purposes

S. 181.2(3)(a) provides that a corporation’s capital includes its retained earnings, which s. 181(3)(b)(i) requires, in the case of most corporations, to be determined in accordance with generally-accepted accounting principles.

On the initial application to it of accounting standards for private enterprises ("ASPEs") on January 1, 2011, a corporation revalued its assets (from their book value under “old” Canadian GAAP) to fair value, and increased its retained earnings accordingly. CRA found that since this increase accorded with ASPEs, such increase also increased the corporation’s capital under s. 181.2(3)(a).

Neal Armstrong. Summary of 2 May 2017 External T.I. 2016-0663781E5 Tr under s. 181(3)(b)(i).