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: Determination of FEDE balance available to a taxpayer in respect of expenses incurred in certain prior taxation years.
Position: Balance available at the end of a particular taxation year depends upon the amount of such expenses that were deductible in computing the taxpayer's income for a preceding taxation year, as determined from the facts of the situation.
Reasons: Based upon the wording of the relevant provisions of the Act and the nature of the determination.
October 31, 2002
Toronto Centre Tax Services Office Resource Industries Section
Large Files Section 453-1-3 A.A. Cameron
(613) 347-1361
Attention: Carme Lau
Large File Case Manager
2002-016975
Subsection 66(4) of the Income Tax Act (the "Act")
We are writing further to your memorandum regarding the above provision of the Act and a request you received from XXXXXXXXXX for an adjustment to the amount of its foreign exploration and development expenses ["FEDE" as defined in subsection 66(15) of the Act] for the XXXXXXXXXX taxation years.
In response to the adjustments requested on behalf of XXXXXXXXXX, the Toronto Centre TSO has taken the position that the amount of the FEDE available for carry forward to the XXXXXXXXXX taxation year should be reduced by the aggregate amount of FEDE deduction that the taxpayers may claim in respect of the unreported FEDE in each of the XXXXXXXXXX taxation years, but did not claim.
The effect of this position is to reduce the amount of unreported FEDE submitted on behalf of XXXXXXXXXX, and a former indirectly wholly-owned subsidiary corporation, by $XXXXXXXXXX and $XXXXXXXXXX, respectively.
The above position has been taken having reference to certain amendments to subparagraph 66(4)(b)(i) of the Act (which are applicable, essentially, to the 1995 and subsequent taxation years) and to certain comments contained in an external opinion issued by this Directorate (the "Opinion", file #2000 -0007105 dated May 11, 2000).
As you have noted, applicable, essentially, to the 1995 and subsequent taxation years, the provisions of subparagraph 66(4)(b)(i) of the Act were amended to refer to "the amount, if any, claimed by the taxpayer not exceeding 10% of the amount determined under paragraph (a) in respect of the taxpayer for the year". Those provisions had formerly read "such amount as the taxpayer may claim not exceeding 10% of the total determined under paragraph (a)".
The above amendment did not receive royal assent until June 14, 2001 and, subsequent to the issuance of the Opinion, the Department of Finance issued Explanatory Notes in December of 2000 which encompassed that amendment. Those Explanatory Notes highlighted the discretionary nature of the deduction available to a taxpayer in respect of FEDE it has incurred.
In particular, it was indicated at page 309 thereof that "[s]ubsection 66(4) sets out the deduction that may be claimed for foreign exploration and development expenses" (emphasis added). In addition, no specific comments were included in those Explanatory Notes with regard to the above amendment to subparagraph 66(4)(b)(i) of the Act, i.e., there was nothing to indicate that such amendment was substantive or other than clarifying in nature.
Prior to the issuance of the Opinion, the long-standing position of the Department /Agency was to consider the amount "deductible" for a previous taxation year for purposes of subparagraph 66(4)(a)(ii) of the Act as being the amount the taxpayer chose to claim in that year under subparagraph 66(4)(b)(i) thereof where the taxpayer's "foreign resource income", as determined under subparagraph 66(4)(b)(ii) of the Act for that year, did not exceed the amount so chosen under paragraph 66(4)(b)(i) thereof.
Conclusion
As the effect of the above described amendment to subparagraph 66(4)(b)(i) of the Act was to confirm the above long-standing position of the Department / Agency regarding the interpretation of that provision of the Act, we would not recommend that you follow the position taken in the Opinion. (We will have a notation to this effect attached to Opinion.)
In other words, we would not consider an amount to be "deductible in computing the taxpayer's income for a preceding taxation year" for purposes of subparagraph 66(4)(a)(ii) of the Act in respect of a taxation year where the taxpayer had no "foreign resource income" (as determined under subparagraph 66(4)(b)(ii) of the Act) and had not made a claim for that taxation year in respect of FEDE previously incurred by the taxpayer.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (613) 957-0682. The severed copy will be sent to you for delivery to the client.
If we can be of further assistance with regard to this matter, please contact the writer.
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
2
- -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2002
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2002
Email this Content