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: Whether a taxpayer's failure to notify the CRA of the existence of a price adjustment clause to an agreement compromises the effectiveness of the price adjustment clause?
Position: No
Reasons: The failure to notify the CRA of the existence of a price adjustment clause when filing a tax return will not, in and of itself, preclude the CRA from recognizing the effectiveness of a price adjustment clause
2013 STEP CANADA ROUNDTABLE, June 10 & 11, 2013
QUESTION 7. Price adjustment clauses
CRA has a long standing position concerning price adjustment clauses, which is documented in Interpretation Bulletin IT-169 dating back to 1974. This position basically states that the CRA will respect a price adjustment clause provided that certain conditions are met. One of the conditions is that the CRA is informed of the existence of the price adjustment clause.
Can you please explain why it is necessary for the CRA to be informed of the price adjustment clause in order for the price adjustment mechanism to actually operate? Put another way, does the price adjustment mechanism operate by virtue of legal documents surrounding it or purely by virtue of an administrative concession by the CRA?
It would seem that if the legal documents contain a valid price adjustment mechanism, which is legally effective, the price adjustment mechanism should operate as a function of law regardless of CRA's administrative position.
In addition, since the bulletin is now almost 40 years old, would the CRA be prepared to issue something which is more comprehensive?
CRA Response
In response to question 58 of the Revenue Canada Round Table at the 1990 Conference of the Canadian Tax Foundation (1990 Conference Report), the CRA has confirmed that the failure to notify the CRA of the existence of a price adjustment clause when filing a tax return will not, in and of itself, preclude the CRA from accepting the price adjustment as valid. The CRA subsequently confirmed its views in that regard in document E 9527537.
Income Tax Folio S4-F3-C1, Price Adjustment Clauses, which has replaced former Interpretation Bulletin IT-169, was released to the public on March 28, 2013. Paragraph 1.5 of Income Tax Folio S4-F3-C1 states the requirements governing the recognition of a price adjustment clause, which do not include the notification requirements formerly included in paragraph 1 (b) of IT-169.
2013-048029
François Mathieu
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