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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Is non-deductible interest that is refunded to a taxpayer on an overpayment of Crown royalty charges included in income.
Position: Yes.
Reasons: A refund of interest to a taxpayer on an overpayment of Crown royalty charges would be required to be included in income in accordance with subparagraph 12(1)(x)(iv). However, the taxpayer would be entitled to elect pursuant to subsection 12(2.2), provided the requirements of both provisions are otherwise satisfied.
January 16, 2003
Large Business Audit Division HEADQUARTERS
Industry Specialist Section Reorganizations and
Mr. Bob Neville Resources
Co-ordinator, Resources Industries D. Shugar
320 Queen Street, Tower B (613) 957-2134
Attention: Zul Ladak 2002-016440
Oil and Gas Specialist
Interest refunded on Crown royalties
This is in reply to your request for our views regarding the treatment of interest refunded to a taxpayer on an overpayment of Crown royalty charges. All references in this letter are to the Income Tax Act.
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In order to reverse the effect of the cases of Johnson & Johnson, 94 DTC 6125 (FCA) and Canada Safeway, 98 DTC 6060 (FCA), paragraph 12(1)(x) was amended to add a reference to amounts refunded. Paragraph 12(1)(x) does not distinguish between refunds of deductible and non-deductible outlays or expenses. It is our view that a refund of previously paid non-deductible interest would be included in income under paragraph 12(1)(x), despite the interest not being a deductible amount in computing income.
In our view, the words "an outlay or expense" as used in both subparagraph 12(1)(x)(iv) and paragraph 12(2.2)(a) extend to a non-deductible expense or outlay. Thus, a refund of such an outlay or expense would be required to be included in income in accordance with subparagraph 12(1)(x)(iv) and the taxpayer would be entitled to elect pursuant to subsection 12(2.2), provided the requirements of both provisions are otherwise satisfied.
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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