16 March 2015 Internal T.I. 2014-0560651I7 - Net Income of Ontario Corporate Minimum Tax (CMT)

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 corporation's gain on the disposition of an interest in its subsidiary must be included in determining adjusted net income for CMT purposes.

Position: Only to the extent that it is recorded in net income of the fiscal period coinciding with the corporation's tax year computed in accordance with generally accepted accounting principles.

Reasons: The Taxation Act (2007) clearly requires that net income for CMT purposes follow generally accepted accounting principles.

March 16, 2015

Tulsieram Harry Lita Krantz
Large File Auditor Income Tax Rulings Directorate
Toronto East Tax Service Office
200 Town Centre Court
Toronto ON M1P 4Y3
2014-056065

Corporate Minimum Tax Thresholds

This is in response to your request for a technical interpretation of the Ontario Taxation Act, 2007 (the "Act") regarding whether a corporation's gain on an arm's length disposition of its 51% interest in a subsidiary corporation (the "Gain") is required to be included in adjusted net income for Ontario Corporate Minimum Tax ("CMT") purposes. In particular, you indicate that the Gain which occurred in the corporation's 2012 tax year was recorded directly to retained earnings and did not impact the corporation's net income from operations for the fiscal period coinciding with the corporation's 2012 tax year.

CMT is determined based on a corporation's adjusted net income (or net loss) ("ANI") pursuant to subsection 57(1) of the Act. The starting point for a corporation's ANI is its net income, or net loss, for the year as defined in subsection 54(2) of the Act to generally be the corporation's financial statement net income or loss, before any income taxes, for the fiscal period coinciding with the taxation year, as determined in accordance with generally accepted accounting principles ("GAAP").

The Act clearly requires that GAAP be the basis for the determination of net income or net loss for the purpose of determining ANI and calculating any CMT liability. Where GAAP excludes certain amounts in the determination of net income or net loss, those amounts, unless otherwise provided for in the CMT legislation, are also excluded for CMT purposes. Assuming the computation of a corporation's financial statement net income is computed in accordance with GAAP, there is no provision in the CMT legislation that will require the inclusion of the amount credited to retained earnings in the determination of ANI.

We trust the above satisfies your request.

Yours truly,

Lita Krantz CPA, CA
for Director,
Deferred Income Plans, Section II
Financial Industries and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch