Principal Issues: (a) Whether the CCRA's position as stated in Window On Canadian Tax under the heading of "Foreign Exploration and Development Expenses Could be Lost" (#1563) dated November, 1991 (the "1991 Letter") in respect a "deductible amount", would remain unchanged. (See our file #E9131130 dated November 21, 1991.) (b) Whether a recent proposed amendment to subsection 66(4) of the Act would have any impact on our views.
Position: (a) With respect to the issue of deductible amount, the CCRA's position in the 1991 Letter regarding foreign resource income would remain unchanged but the position regarding the 10% discretionary claim would be amended as described below effective on the date of this letter and thereafter. (b) The recent proposed amendment to subsection 66(4) of the Act as described below would have impact on this revised position effective for 1995 and subsequent taxation years, provided that this proposed change would be enacted into the Act. As a result, this further revised position would now be consistent with the CCRA's position in the 1991 Letter.
Reasons: (a) Given the jurisprudence in respect of the issue on "deductible" vs. "deducted" and the CCRA's comments in the Interpretation Bulletin IT-270R2 in respect of the issue of "amount not deductible" vs. "amount not claimed and deducted", for the first example in the 1991 Letter wherein the taxpayer could have claimed a 10% maximum deduction of $100 - he may claim an amount not exceeding 10%, but did not do so, it is our view that in determining the taxpayer's subsection 66(4) claim for 1992, the amount of 1991 FEDE which was not deductible in 1991 for the purpose of paragraph 66(4)(a) of the Act would be $900 instead of $1,000. As a result, the CCRA's position in the 1991 Letter in respect of the 10% discretionary claim would be amended accordingly effective on the date of this letter and thereafter. (b) Given that under the proposed subsection 66(4) of the Act a taxpayer "may deduct... such amount as the taxpayer claims... ", the better view is that this change would result in whatever amount claimed (i.e., not may be claimed) by the taxpayer under paragraph 66(4)(b)(i) of the Act in a taxation year would become deductible (i.e., may be deducted) by the taxpayer under subsection 66(4) of the Act for the taxation year. In other words, whatever amount not claimed under paragraph 66(4)(b)(i) of the Act would not be considered as deductible under subsection 66(4) of the Act. Accordingly, given this proposed change, in the first example in the 1991 Letter, the taxpayer could have claimed a 10% maximum deduction of $100 in Year 1 - he claims an amount not exceeding 10%, but did not claim anything. As a result, the amount that may be deducted in Year 1 would be the amount being claimed - nil. It is our view that in determining the taxpayer's subsection 66(4) claim for Year 2, the amount of Year 1 FEDE which was not deductible in Year 1 for the purpose of paragraph 66(4)(a) of the Act would be $1,000. This would now be consistent with the CCRA's position in the 1991 Letter and would be effective for 1995 and subsequent taxation years, provided this proposed change would be enacted into the Act.