14 August 2007 Internal T.I. 2007-0244621I7 - Apprenticeship Job Creation Tax Credit - 12(1)(t)

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: What is the proper tax treatment of investment tax credits received in respect of the Apprenticeship Job Creation Tax Credit?

Position: If well-accepted business principles do not apply to reduce an expense or the cost of property by the ITC, or to otherwise include the ITC in computing income, paragraph 12(1)(t) provides a specific rule requiring income inclusion of the ITC in the taxation year following the year in which the credit is claimed to reduce tax payable.

Reasons: The law. Paragraphs 2 and 21 of IT-273R2.

									August 14, 2007

	Taxpayer Services Directorate				HEADQUARTERS
	Programs Division 					Income Tax Rulings
R. Denis, Director	   				Directorate
									James Atkinson CGA
Att. : Brenda Goyette					(519) 457-4832

									2007-024462

Apprenticeship Job Creation Tax Credit

This is in response to your email of July 10, 2007 to Cornelis Rystenbil of the Legislative Policy Directorate, concerning the tax treatment of the Apprenticeship Job Creation Tax Credit ("AJCTC"). Your correspondence was referred to us for reply. You question whether the amount of AJCTC deducted in computing tax payable should be included in income as an inducement pursuant to paragraph 12(1)(x) or some other provision of the Income Tax Act ("Act").

Our Comments:

The AJCTC is computed with reference to eligible salary and wages payable to an eligible apprentice on or after May 2, 2006 by a taxpayer that carries on business in Canada and is deducted in computing tax payable pursuant to subsection 127(5) of the Act. The AJCT could be regarded as assistance provided as an inducement to hire apprentices.

Paragraph 2 of Interpretation Bulletin IT-273R2, Government Assistance - General Comments, describes the tax treatment of assistance as follows:

¶ 2. When assistance is received in the course of earning income from a business or property, the application of well-accepted business principles for the purpose of calculating profit or loss under section 9 commonly requires the cost of an asset or the amount of an expense to be reduced by any reimbursement or similar payment that relates to the acquisition of the asset or the expense incurred.

...

If the application of well-accepted business principles relating to the calculation of profit or loss for the purpose of section 9 does not require the government assistance to be included in income, or to reduce the cost or capital cost of a property or the amount deductible as an expense, a specific provision of the Income Tax Act, such as paragraph 12(1)(t), 12(1)(x), 12(1)(x.1) or 28(1)(d) (which refers to amounts deferred under section 80.3), or subparagraph 56(1)(a)(vi), may apply to require the amount to be included in income.

In respect of investment tax credits, such as the AJCTC, claimed under subsection 127(5), paragraph 12(1)(t) of the Act has specific application where well-accepted business principles do not otherwise apply to the credit. Paragraph 12(1)(t) requires that the amount deducted under subsection 127(5) should be included in computing the taxpayer's income for the taxation year following the year in which the credit is deducted to the extent that it was not included in computing income in a preceding taxation year pursuant to this paragraph or is not used to reduce the capital cost of depreciable property (paragraph 13(7.1)(e)), scientific research and experimental development expenditures (paragraph 37(1)(e)), the cost of an interest in a partnership (subparagraph 53(2)(c)(vi)) or of a capital interest in certain trusts (subparagraph 53(2)(h)(ii)), the "undepreciated capital cost" of depreciable property of a prescribed class ( per I of the definition in subsection 13(21)) or certain resource expenditures.

We trust that these comments will be of assistance.

Yours truly,

S. Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

c.c. Cornelis Rystenbil
Legislative Policy Directorate