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.
Question
17. Section 3060 of the CICA HANDBOOK confirms that generally accepted accounting principles ( "GAAP" ) in Canada require that future removal and site restoration costs be accrued and charged to income in a rational and systematic manner when such costs are reasonably determinable. Such accruals are necessary to achieve proper matching of revenues and expenses.
However, even though profit from a business is computed under section 9 of the Income Tax Act in accordance with GAAP, Revenue Canada continues to prohibit the deduction of provisions for site restoration costs under paragraph 18(1)(e) of the Act as amounts on account of a reserve, contingent liability or sinking fund.
How does the Department support its position given that most provincial governments require businesses to restore land to a useable state?
Answer
17. The requirement by provinces for site restoration, by itself, does not give rise to an expense. This is supported by The Queen v. Burnco Industries Ltd., et al, 84 DTC 6348, wherein the Federal Court of Appeal stated that an obligation to do something which may in the future entail the necessity of paying money is not an expense for income tax purposes.
Section 9 of the Act states that a taxpayer's income is the profit for the year, subject to the provisions of Part I of the Act. Paragraph 18(1)(e) of the Act prohibits a deduction of
"an amount as, or on account of, a reserve, a contingent liability or amount or a sinking fund except as expressly permitted by this Part".
There is no provision in Part I permitting the deduction of accruals under GAAP for site restoration costs.
It is our view that a payment to a government-mandated site restoration fund would be deductible under the Act where, for example, the payment was made pursuant to a levy by a province which itself would be responsible for the site restoration, the payment to the province was irrevocable (that is, it had no element of refundability), the payor's obligation for the site restoration was discharged contemporaneously and the payment is not one to which paragraph 18(1)(m) of the Act applies. We are buttressed in our view by the court case The Queen v. Nomad Sand and Gravel Limited, 91 DTC 5032 (F.C.A.).
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