1 June 1989 Income Tax Severed Letter 7-3896 - Revision of flow-through share forms T100, T101 Summary and Supplementary, and T102 Summary and Supplementary

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.

We are writing in response to your memorandum, dated May 9, 1989, and our meeting with you on May 18, wherein you asked us to review the draft revisions to the above forms and to provide our comments, thereon.

Our comments are as follows:

Form T100

A) The proposed wording changes in the preamble and also in paragraph 6 of Form T100 should make it clear that:

• (1) the "assistance kept" relates to assistance that the corporation has received, is entitled to receive, or may reasonably be expected to receive at any time;
• (2) the assistance referred to in the form is only the assistance related to the expenses that were incurred by the corporation which entitled it to the particular assistance; and
• (3) assistance in respect of prescribed Canadian exploration and development overhead expenses does not reduce the amount of expenditures available for renunciation (refer to paragraphs 66(12.6) (a) and 66(12.62)(a) of the Act).

B) Since "assistance", as defined in paragraph 66(15)(a.1) of the Act, is not limited to CEDIP and CEIP, provision for assistance grinds should be made in paragraph c, d, e and f of revised Form T100. This would be consistent with your revised paragraphs a and b.

Form T101 Summary

C) Provision should be made for assistance grinds in paragraphs 4(i)(c), 4(ii) and 4(iii). Refer to our comments in paragraph B above.

D) The reference in paragraph 4 to "assistance kept or to be kept" should be amended to reflect the same three points noted in paragraph A of this memo.

(E) The formula in paragraph 4 should provide for a reduction to actual expenses incurred in respect of "expenses incurred but not renounced". This would be consistent with the formula in paragraph 6 of revised Form T100.

Consider the following example:

Form T100

Total expenses to be incurred                            $  1,000,000
     Less:  Assistance to be kept by the company                   (0)
            Expenses to be incurred but not
            renounced (i.e. prescribed CEDOE)                 (50,000)
     Amount to be renounced                              $    950,000
     Form T101 (Present draft formula)
     Actual expenses incurred                            $  1,000,000
     Less:   Assistance kept or to be kept
             by the company                                        (0)

• Amount renounced (net of prescribed CEDOE) should be $950,000 versus the $1,000,000 figure yielded by the above calculation.

Form T101 (Suggested revision)

Actual expenses incurred                                 $  1,000,000
     Less:  Assistance kept or to be kept
            by the company                                         (0)
     Expenses incurred but not
            renounced                                         (50,000)
     Amount renounced                                    $    950,000

• The suggested revision above provides a line similar to that found on draft Form T100 for expenses which have been incurred but for one reason or another are not being renounced by the corporation.
• Should we also consider a line in the formula separate from the more general "expenses incurred but not renounced" line, to specify the amount of prescribed CEDOE which is not being renounced, in accordance with paragraph 66(12.6)(b) of the Act? This would serve as a reminder to the resource companies that prescribed CEDOE cannot be renounced to its investors,

F) You may want to clarify paragraph 5 to note that the bracketed portion only includes expenses previously renounced where the assistance relating thereto was not known at the time of the prior renunciation and is now being accounted for.

G) Subsection 66(12.7) of the Act and section 228 of the Regulations provide statutory authority for filing Form T101 where there has been a renunciation of resource expenditures. However, statutory authority to require a filing of revised Form T101 appears to be lacking when there is only an allocation of assistance in a particular year and no renunciation of expenditures. We understand that you have already identified this issue and have been consulting with the Department of Justice.

Form T101 Supplementary

H) The instructions concerning "Box (G)" on copies 2 and 3 of the revised T101 Supplementary should not be limited to a discussion of cumulative CEE grinds for assistance paid or due to the investor. Assistance, in respect of a Canadian exploration expense, a Canadian development expense or a Canadian oil and gas property expense, grinds the investor's respective cumulative resource pools. Refer to paragraphs 66.1(6)(b)(ix), 66.2(5)(b)(xi) and 66.4(5)(b)(viii) of the Act.

• It should also be kept in mind that negative cumulative CEE and CDE pools are to be reported as income pursuant to paragraphs 59(3.2)(b) and (c) of the Act, respectively. However, negative cumulative COGPE pools are not brought directly into income, but instead, reduce cumulative CDE pools pursuant to paragraph 66.2(5)(b)(x) of the Act.

Form T102 Summary

I) Subsection 66(12.69) of the Act provides statutory authority for filing Form T102 Summary where there has been a renunciation of resource expenditures to a partnership. However, there does not appear to be any statutory requirement to file the form when there is only an allocation of assistance to the partnership in a particular year and no renunciation of expenditures. As noted in G' above, we understand this issue is presently being discussed with Justice.

Form T102 Supplementary

J) Same cents as in "H" above.

K) You may want to revise the wording at the bottom of the form concerning "Partnership Fiscal Period Ending" to make it easier to read. For example "Amounts in Box I should be reported by individuals on their T1 Returns for the calendar year in which the partnership's fiscal period ends".

If you have any further queries on this matter, please contact the writer.