Principales Questions: 1. Whether the term "retained earnings" in paragraph 181.2(3)(a) refers to the definition of retained earnings in Section 3251 of CPA Canada Handbook - Accounting (Part II Accounting Standards for Private Enterprises (ASPE))?
2. Whether the adjustments to retained earnings resulting from the fair value adjustments in accordance with Section 1500 of CPA Canada Handbook - Accounting (Part II ASPE) should be considered in computing the taxpayer's capital pursuant to subsection 181.2(3)?
Position Adoptée: 1. The accounting meaning of retained earnings under ASPE should be used for the purpose of paragraph 181.2(3)(a) for a taxpayer that follows the ASPE.
2. Yes, provided that the accounting treatment of the adjustments are in accordance with ASPE.
Raisons: 1. Subparagraph 181(3)(b)(i) refers to the amount reflected on the balance sheet that is prepared in accordance with GAAP. ASPE is part of GAAP in Canada. Where a term in Part I.3 (such as retained earnings) derives its meaning from accounting principles, the accounting meaning has to be used. 2. Paragraph 181.2(3)(a) specifically mentions retained earnings to be added in computing capital.