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: Would the CRA be willing to provide additional examples of how “inflow” should be interpreted for the purposes of determining qualifying revenue and, specifically, whether “inflows” should reflect amounts that get invoiced or amounts that ultimately get booked as revenue (which may not be the same e.g. pass through costs)?
Position: General comments provided
Reasons: See below
S. Thibault, CPA, CA,
LL. M. fisc.
October 26, 2020
Re: CEWS – Meaning of inflow
We are writing to you in response of your e-mail sent to Mr Tracy Annett on June 19, 2020, wherein you are requesting our position regarding different matters related to the Canada Emergency Wage Subsidy (CEWS) under recently enacted section 125.7 of the Income Tax Act (the “Act”).
More precisely, in one of the questions sent to Mr Annett (question 4), you asked if the CRA would be willing to provide additional examples of how “inflow” should be interpreted for the purposes of determining qualifying revenue and, specifically, whether “inflows” should reflect amounts that get invoiced or amounts that ultimately get booked as revenue. You also provided a specific example of an industry with two business lines and asked how should qualifying revenue be determined for each of the business lines.
This technical interpretation provides general comments about the provisions of the Act and related legislation. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R10, Advance Income Tax Rulings and Technical Interpretations (“Circular IC70-6R10”).
The definition of “qualifying revenue” under subsection 125.7(1) enacts that qualifying revenue of an eligible entity means the inflow of cash, receivables or other consideration arising in the course of its ordinary activities in Canada, generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entity. For greater certainty, qualifying revenue excludes amounts from extraordinary items, amounts on account of capital and amounts from persons or partnerships that the eligible employer was not dealing with at arm's length.
Subsection 125.7(4) enacts that the qualifying revenue of an eligible entity is generally determined in accordance with its normal accounting practices. Normal accounting practices may vary from taxpayer to taxpayer. As noted in paragraph 19 of the Circular IC70-6R10, there are situations in respect of which our Directorate will not or cannot issue an advance income tax ruling (“ruling”). In situations involving an opinion on accounting or commercial principles, practices, or guidelines, we will not issue a ruling or a technical interpretation.
We trust our comments will be of assistance.
Michel Lambert, CPA, CA, M. Fisc.
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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