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: Is the payment of an administrative penalty assessed under Alberta's Climate Change and Emissions Management Act deductible under the ITA?
Position: No.
Reasons: An administrative penalty is a fine or penalty. Section 67.6 of the ITA denies a deduction for the payment of a fine or penalty.
XXXXXXXXXX
2012-044047
L. Zannese
(613) 941-0782
July 10, 2012
Dear XXXXXXXXXX:
Re: Payment Pursuant to Alberta Greenhouse Gas Legislation
This is in response to your email dated March 20, 2012, in which you requested our views as to whether the payment of an administrative penalty would be deductible under the Income Tax Act (the “Act”).
You advise that your client is subject to certain emission limits established by the Province of Alberta’s Climate Change and Emissions Management Act and the related regulations. Your client has failed to meet the emissions limit set by this legislation and as a result may be assessed an administrative penalty. You suggest that your client may be able to pay the administrative penalty by surrendering certain emission credits. The issue is whether the administrative penalty is a fine or penalty within the meaning of section 67.6 of the Act.
OUR COMMENTS
The determination of the income tax treatment of payments, such as those described in your email, involve questions of fact that can only be determined after reviewing all of the relevant documentation and related legislation. However, based on the information available to us, we are prepared to offer the following comments, which may be of assistance.
Subject to certain prescribed exceptions, section 67.6 of the Act provides that no deduction shall be made in respect of any amount that is a fine or penalty imposed under a law of a country or a political subdivision of a country (including a state, province, or territory) by any person or public body that has authority to impose the fine or penalty.
It is our understanding that the administrative penalties imposed under the Province of Alberta’s Climate Change and Emissions Management Act can only be settled through a cash payment. It is our view that the amounts described as penalties under the Province of Alberta’s Climate Change and Emissions Management Act are not deductible in computing income by virtue of section 67.6 of the Act.
Yours truly,
Fiona Harrison, C.A.
Manager
Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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