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: Whether following items are to be included in gross revenue for purposes of section 402 of the Regulations: (1) foreign exchange gains; (2) interest on intercompany loans; (3) ITC; and (4) interest on income tax refunds, trust accounts.
Position: (1) Yes, where on income account; (2) yes; (3) no; (4) yes.
Reasons: (1), (2) and (4) not excluded from the definition; (3) ITC is based on SR&ED expenditures which are generally considered to be capital in nature.
January 6, 2004
Regina Tax Services Office HEADQUARTERS
B. G. Dodd
Mary-Lou Saccary (613) 957-8954
Income Tax Technical Advisor
2003-004143
Taxable Income Earned in a Province by a Corporation
We are writing in reply to your August 20, 2003 request concerning the determination of gross revenue for the year for purposes of Part IV of the Income Tax Regulations (the "Regulations").
In accordance with rules set out in Part IV of the Regulations, particularly in subsection 402(3) thereof, the amount of a corporation's gross revenue for the year is a factor used in allocating a corporation's taxable income to various provinces. The term "gross revenue" is defined in subsection 248(1) of the Income Tax Act (the "Act") and by virtue of section 16 of the Interpretation Act, this definition is also applicable for purposes of the Regulations. Pursuant to subsection 248(1) of the Act, "gross revenue" means
"the total of
(a) all amounts received in the year or receivable in the year (depending on the method regularly followed by the taxpayer in computing the taxpayer's income) otherwise than as or on account of capital, and
(b) all amounts (other than amounts referred to in paragraph (a)) included in computing the taxpayer's income from a business or property for the year by virtue of paragraph 12(1)(o) or subsection 12(3) or (4) or section 12.2 of this Act or subsection 12(8) of the Income Tax Act, chapter 148 of the Revised Statutes of Canada, 1952".
Subsection 402(5) of the Regulations further provides that, for purposes of subsection 402(3) of the Regulations, gross revenue does not include interest on bonds, debentures or mortgages, dividends on shares of capital stock, or rentals or royalties from property that is not used in connection with the principal business operations of the corporation.
The following reflects our views on whether the specific items to which you refer are to be included in gross revenue for purposes of subsection 402(3) of the Regulations.
- In the case of foreign exchange gains, it is our view that such gains would only be included in gross revenue where the gains are on income account. (The comments in IT-95R may be of assistance in determining whether such gains are on income or capital account.) it is our view that a foreign exchange loss would not be included in gross revenue nor should such losses be netted against foreign exchange gains for purposes of determining gross revenue.
- In the case of interest income on intercompany loans receivable, it is our view that (a) such interest would be included in gross revenue and (b) such interest income would not be reduced by any interest expense incurred on intercompany loans payable.
- In our view, the amount of an investment tax credit under subsection 127(5) of the Act which is reported on the financial statements as income and deducted on the T2 SCH 1 for purposes of computing taxable income would not be included in gross revenue.
- In the case of interest on income tax refunds or on funds held in trust, it is our view that such interest would be included in computing gross revenue.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. 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 electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you from Mrs. Jackie Page at (819)994-2898, who will send the severed copy to you for delivery to the client.
We hope this will be of assistance.
Wayne Antle, CGA
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
Cc Bert Riverso
Provincial Legislative Affairs
Legislative Policy Directorate
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