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.
Principal Issues:
Whether an individual's labour-sponsored funds tax credit ("LSFTC") that exceeds the individual's labour-sponsored funds tax credit limit ("LSFTC Limit") for a taxation year may be carried forward & applied in a subsequent taxation year.
Position TAKEN:
Excluding the eligibility for deduction in the immediately preceding taxation year of a labour-sponsored tax credit on an approved share acquired by an individual in the 1st 60 days of a taxation year there is no provision in the Act which permits the carry forward of a LSFTC to a subsequent taxation year.
Reasons FOR POSITION TAKEN:
The Act
XXXXXXXXXX 2000-002754
P. Diguer CGA
Attention: XXXXXXXXXX
June 21, 2000
Dear Sir:
Re: Labour-Sponsored Funds Tax Credit carry-over
This is in reply to your letter dated May 19, 2000 in which you request our views on whether an individual's labour-sponsored funds tax credit that exceeds the individual's labour-sponsored fund tax credit limit for a taxation year may be carried forward and claimed as a deduction of labour sponsored funds tax credit in a subsequent taxation year. The expressions "labour-sponsored funds tax credit", "labour sponsored funds tax credit limit" and " deduction of labour sponsored funds tax credit" as referred to here and subsequently have the meanings assigned by subsections 127.4(6), 127.4(5) and 127.4(2), respectively, of the Income Tax Act (Canada) (the "Act"). In particular you ask:
If an individual purchases in February 2000, within their RRSP, approved shares in a prescribed venture capital corporation for $15,000 may he or she claim a deduction for labour sponsored funds tax credit in the amount of $750. ($5,000 net cost) in 1999, $750. ($5,000 net cost) in 2000 and $750. ($5,000 net cost) in 2001, provided the acquisition otherwise qualifies?
Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular IC-70-6R3 dated December 30, 1996. Nevertheless, we offer the following general comments in connection with your request which we hope are of assistance to you.
Subsection 127.4(2) of the Act provides that an individual may deduct "...from the tax otherwise payable...for a taxation year such amount as the individual claims not exceeding the individual's labour-sponsored funds tax credit for the year".
Subsection 127.4(6) of the Act provides that an individual's labour-sponsored funds tax credit in respect of an original acquisition of an approved share is equal to the least of
(a) 15% of the net cost to the individual (or to a qualifying trust for the individual in respect of the share) for the original acquisition of the share by the individual or by the trust,
(b)...
Subsection 127.4(5) of the Act provides that an individual's labour-sponsored funds tax credit limit for a taxation year is the lesser of
(a) $750, and
(b) the amount, if any, by which
(i) the total of all amounts each of which is the individual's labour-sponsored funds tax credit in respect of an original acquisition in the year or in the first 60 days of the following taxation year of an approved share
exceeds
(ii) the portion of the total described in subparagraph (i) that was deducted under subsection (2) in computing the individual's tax payable under this Part for the preceding taxation year.
(our emphasis added)
Thus, the formula in 127.4(5) restricts the labour-sponsored tax credits that may be included in the formula to amounts which are tax credits in respect of an original acquisition during the taxation year as well as in the first 60 days of the following taxation year (14 months) less any tax credit amounts included in the 14 month period that were claimed in the previous taxation year. Moreover, the labour-sponsored funds tax credit for a taxation year is capped at $750.
Thus, if we refer to the example which you set out in your letter, the individual's labour-sponsored funds tax credit limit for the purposes of 127.4(2) is computed as follows:
Year 1999
Labour-sponsored funds tax credit (127.4(6))
$2250 ($15,000 X 15%)
Labour-sponsored funds tax credit limit (127.4(5))
$750 Lesser of: (a) $750
and
(b) (i) $2,250
- (ii) Nil $2,250
Deduction of labour-sponsored funds tax credit (127.4(2))
$750
Year 2000
Labour-sponsored funds tax credit (127.4(6))
$2250 ($15,000 X 15%)
Labour-sponsored funds tax credit limit (127.4(5))
$750 Lesser of: (a) $750
and
(b) (i) $2,250
less (ii) 750 $1,500
Deduction of labour-sponsored funds tax credit (127.4(2)
$750
Year 2001
Labour-sponsored funds tax credit (127.4(6))
$2250 ($15,000 X 15%)
Labour-sponsored funds tax credit limit (127.4(5))
$750 Lesser of: (a) $750
and
(b) (i) Nil
less (ii) Nil Nil
Deduction of labour-sponsored funds tax credit (127.4(2))
Nil
As such, a labour-sponsored tax credit (not exceeding the labour-sponsored funds tax credit limit for a taxation year) on an approved share acquired by an individual in the 1st 60 days of a taxation year may, if it otherwise qualifies, be deducted pursuant to subsection 127.4(2) of the Act, in its entirety in the immediately preceding taxation year or in the taxation year in which it was acquired or in part (up to the labour-sponsored funds tax credit limit) in the preceding year and the balance (up to the labour-sponsored funds tax credit limit) in the taxation year in which it was acquired.
Excluding the eligibility for deduction in the immediately preceding taxation year of a labour-sponsored tax credit on an approved share acquired by an individual in the 1st 60 days of a taxation year there is no provision in the Act which permits the carry forward of a labour-sponsored fund tax credit to a subsequent taxation year.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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