23 December 1993 Income Tax Severed Letter 9307687 - Exempt Income—Federal Abatement—SBD

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                             December 23, 1993

      London District Office                 Head Office
      Business Enquiries                     Rulings Directorate
                                             (613) 957-8953

Attention: Morris Zambon / Katherine Kiar

                                             930768

Paragraph 149(1)(t) and Subsections 124(1) and 125(1)

This is in reply to your memorandum of March 17, 1993, concerning the anomaly resulting when a taxpayer entitled to tax exemption under paragraph 149(1)(t) claims the 10% tax abatement under subsection 124(1). In such cases, for taxation years ending before 1992, it appears that a taxpayer may calculate this abatement on the entire amount of taxable income, including the amount on which no tax is payable under subsection 149(1). A similar result also occurs in respect of subsection 125(1).

As you are aware, amendments to subsection 124(3) and subparagraph 125(1)(b)(iii) now remedy this problem for the 1992 and subsequent taxation years. Prior to these amendments being enacted, a taxpayer could have claimed the provincial abatement or the small business deduction on any taxable income which was exempt from tax. Head Office Appeals had also been looking at this matter rather closely based on Notices of Objections being filed by numerous taxpayers. Their review of this matter also requested an opinion from the Current Amendments and Regulations Division. The Current Amendments and Regulations Division maintains the view that prior to the enactment of the amendments an anomaly existed in the Act. Head Office Appeals has advised other District Offices to allow the claiming of subsections 124(1) and 125(1) deductions on paragraph 149(1)(t) exempt income for any amendments or objections filed. We concur with the interpretation expressed by both Current Amendments and Appeals. We enclose for your files a copy of the letter, dated December 2, 1993, from Appeals to T2 Assessing advising them of their recommendation.

We apologize for the delay in our response.

B.W. Dath Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch