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.
August 6, 1985
J.W. Shaw
Re: XXXX 1982 Reserve under subsection 26(2)
This is in reply to your memorandum of June 5, 1985 in which you requested our views as to whether an amount of XXXX being a restatement of the Bank's closing 1981 subsection 26(2) reserve is deductible in computing its income for 1982.
The restatement of the opening balance of the reserve, at least for financial statement purposes, seems to have been a requirement of regulations or other rules related to the Banks & Banking Law Revision Rules, 1980 and applicable effective the first day of the Bank's 1982 taxation year from the Toronto District Office's rather brief explanation of the matter in their memorandum of January 31, 1985 to your section.
Subsection 26(2) provides a deduction discretionary in amount up to a stated maximum and subject to approval as to quantum by the Minister of Finance. Subparagraph (i) sets out the basis for the deduction - "amounts... set aside or reserved for the year or a preceding taxation year as or an account of the general appropriations of the bank...." Subparagraph (ii) precludes the deductibility of an amount determined under subparagraph (i) equal to deductions claimed by the bank for its preceding taxation years.
Assuming the amount meets the requirements of subparagraph (i) as to its nature we have not examined the District Office's conclusion the adjustment is the result of a statutory requirement - while the components of the XXXX relate to years prior to 1982, they have not been deducted in those years, and, consequently, we conclude they are deductible in 1982.
We cannot conclude the amounts are other than "amounts set aside or reserved for... a preceding taxation year" nor that the wording of the section precludes a restatement of amounts with respect to a preceding taxation year.
Chief Financial Institution Section Legislation Branch
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