Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: Whether the answer to Q. 25 of the round table at 2003 APFF conference is still valid?
Position: No
Reasons: Kruco Inc. and position of Appeals
March 2, 2004
Quebec Tax Services Office Income Tax Rulings Directorate
Corporate Reorganizations and Industrial
Attention: Jacques Renaud Resources Division
Tax Avoidance Section
Robert Gagnon
(613) 957-2108
2004-006104
XXXXXXXXXX
This is in response to your memorandum of February 4, 2004, in which you asked whether the Rulings Directorate's position on the impact of investment tax credits ("ITCs") on computing safe income on hand, which was referred to in response to question 25 at the 2003 Association de planification fiscale et financière ("APFF") conference Roundtable on federal taxation, is still valid. You stated that the January 19, 2004 directive from the Appeals Branch is inconsistent with the position taken at the APFF Roundtable.
At the 2003 APFF conference Roundtable, we stated [TaxInterpretations translation], "CRA's current position is that, in the taxation year in which the ITCs are claimed, the amount of safe income on hand is reduced by the amount of taxes payable determined without regard to the ITCs claimed; and it is only in taxation years subsequent to the year in which they are claimed that the ITCs can have the effect of increasing safe income on hand.”
In its decision number 2001-52R of January 19, 2004, the Appeals Branch noted that the Federal Court of Appeal concluded in Kruco Inc. 2003 DTC 5506 that no adjustment should be made for phantom income, and that all objections and similar appeals pending the conclusion of the Kruco Inc. case should be resolved accordingly.
The position of the Appeals Branch takes precedence over the position of the Rulings Directorate. Our position described above is no longer valid. Consequently, you should not reassess the taxpayer on the basis of a change in safe income on hand based on our position expressed at the 2003 APFF convention.
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's 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, the CRA library version can be provided. Alternatively, the client 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 to Ms. Jackie Page at (819) 994-2898. A copy that has been severed in accordance with the Privacy Act will be sent to you for delivery to the client.
Should you require additional information regarding this matter, please do not hesitate to contact us.
Maurice Bisson, CGA
Section Manager
for the Director
Corporate Reorganizations and Industrial Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch
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