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.
Principal Issues: Clarification of comments in document 2003-018169. (1) What amounts are used under subsection 181(3) if the financial statements presented to the corporation's shareholders were not prepared in accordance with GAAP? (2) What did we mean by "earnings" in document 2003-018169?
Position: (1) Amounts used are the amounts that would have been reflected on the balance sheet if it had been prepared in accordance with GAAP. (2) Income and losses.
Reasons: The legislation
XXXXXXXXXX 2004-006470
Alison Campbell
May 11, 2004
Dear XXXXXXXXXX:
Re: Partnership Income and Large Corporation Tax
This is in reply to your letter of February 27, 2004, requesting clarification on a couple of points addressed in our letter to you of July 11, 2003 (Our document 2003-0181695). That document discussed the computation of a corporate partner's capital, for purposes of Part I.3 of the Income Tax Act (the "Act"), in respect of the partner's partnership earnings.
Where the balance sheet prepared by a corporate partner for presentation to the shareholders of the corporation, does not report the partner's interest in a partnership in accordance with Generally Accepted Accounting Principals ("GAAP"), the balance sheet must be restated to reflect GAAP. Paragraph 181(3)(b) of the Act, provides that for purposes of determining values and amounts to be used in computing a corporation's Part I.3 tax, where the balance sheet presented to the shareholders was not prepared in accordance with generally accepted accounting principles, computations under Part I.3 of the Act are determined by the amounts that would be reflected if the a balance sheet provided to the corporation's shareholders had been prepared in accordance with generally accepted accounting principles.
In our document number 2003-1081695, we made reference to the "earnings" of a partnership of which a corporate partner is a member. Our reference to "earnings" in this document means both income and losses of a partnership.
We trust our comments have clarified our previous comments.
Yours truly,
F. Lee Workman
Section Manager
Financial Institutions Section
Income Tax Rulings Directorate
Policy and Legislation Branch
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