4 May 2010 Roundtable, 2010-0359441C6 - CALU CRA Roundtable Q4 -2010

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: Does CMT apply to a life insurance death benefit? 2) Can CMT payable be reduced by paying a taxable or capital dividend?

Position: 1) Yes; 2) No

Reasons: 1) life insurance benefits included in net income for accounting purposes are included in adjusted net income for CMT purposes. 2) There is no reduction to net income for CMT purposes for taxable or capital dividends paid or payable.

CALU CRA Roundtable - 2010

Question 4: Ontario Corporate Minimum Tax and life insurance benefits

Since 1993 Ontario has had a corporate minimum tax (CMT) which applies if the corporation, together with any associated corporations, has annual gross revenues in excess of $10 million or total assets in excess of $5 million.

In determining if Ontario CMT applies, financial statements must be prepared in accordance with Generally Accepted Accounting Principles (and after the end of 2010, in accordance with International Financial Reporting Standards, should those apply to the particular corporation). Under GAAP, non-taxable amounts that are received by the corporation, such as the non-taxable portion of a capital gain, are included in income for accounting purposes.

If Ontario CMT applies, the amount of the minimum tax paid may be carried forward and used to offset Ontario corporate tax payable in future years.
Questions:
a) Can the CRA provide its views as to whether the Ontario CMT would apply to a life insurance death benefit received by a corporation?

b) If yes, would the CRA please confirm that a corporation could minimize its potential exposure to Ontario CMT by paying either a taxable or a capital dividend in the taxation year the death benefit is received?

Agency´s Response:
a) Subsection 54(2) of the Ontario Taxation Act, 2007 (the "TA"), determines a corporation's net income or loss for CMT purposes. The net income for CMT purposes of a corporation, other than a life insurance corporation or a bank, is generally equal to the corporation's net income, before income taxes, determined in accordance with generally accepted accounting principles (GAAP), except that the consolidation and equity methods of accounting are not used. For life insurance corporations, the net income for CMT purposes is generally based on the corporation's net income, before income tax and the special additional tax on life insurance corporations, reported in its annual report to the relevant authority. Therefore, if a life insurance death benefit received by a corporation, that is subject to CMT in the year, is included in net income under GAAP or in net income reported to the relevant authority, it will be subject to CMT since the TA does not provide a deduction from net income for CMT purposes for the life insurance death benefit received.

b) Pursuant to subsection 57(2) of the TA, no deduction is permitted from net income for CMT purposes for a taxable dividend or a capital dividend paid or payable by the corporation.

Kathy Hooey
2010-035944
May 4, 2010