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: [TaxInterpretations translation]
For Part I.3 tax purposes, can financial statements prepared under US GAAP be accepted?
Position:
Usually not.
Reasons:
The notion of GAAP in subsection 181(3) generally refers to Canadian GAAP.
CAPITAL TAX ROUNDTABLE
APFF - INTERPROVINCIAL TAXATION & CAPITAL TAX SYMPOSIUM
Question 3
Subsection 181(3) of the Act provides, inter alia, that for the purposes of determining the carrying value of a corporation’s assets or any other amount under Part I.3 in respect of a corporation's capital, investment allowance, taxable capital or taxable capital employed in Canada for a taxation year, the amounts to be used are those reflected in the balance sheet presented to the shareholders of the corporation or, where such a balance sheet was not prepared in accordance with generally accepted accounting principles (GAAP) or no such balance sheet was prepared, the amounts that would be reflected if such a balance sheet had been prepared.
Amendments to sections 70 and 71 of the Canada Business Corporations Regulations, 2001, effective March 8, 2005, provide that Canadian public corporations subject to U.S. Securities and Exchange Commission filing requirements may file their financial statements under U.S. GAAP.
Can the CRA indicate if it is prepared to recognize that GAAP could include US GAAP?
CRA Response
Under subparagraph 181(3)(b)(i), the balance sheet to be used is the one presented to the shareholders of the corporation. Where the balance sheet presented to the shareholders cannot be used because it is not prepared in accordance with GAAP, or if such a balance sheet has not been prepared, subparagraph 181(3)(b) provides that the amounts to be used are the amounts that would be shown on the balance sheet if such a balance sheet were prepared in accordance with GAAP. It is the CRA's view that GAAP refers to the current accounting standards or principles established by the Canadian Institute of Chartered Accountants (CICA), the recognized authority in Canada.
Consequently, it is the amounts in the Canadian GAAP financial statements that should generally be used for Part I.3 tax purposes.
Where the balance sheet is prepared in accordance with U.S. GAAP, the CRA will accept the amounts shown on that balance sheet to the extent that it can be demonstrated that such amounts are those that would have been shown on the balance sheet had it been prepared in accordance with Canadian GAAP. For this purpose, the opinion of a public accountant can be accepted.
Louise J. Roy
2005-012708
May 11 and 12, 2005
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