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.
HAA 5638-2
PRINCIPAL ISSUES
1. Whether a write down by a real estate developer of
(a) revenue-producing real estate properties,
(b) properties being held for development, and
(c) advances to affiliates (long-term investments)
constitutes "reserves" within the meaning of subsection 181(1) which are to be included in computing capital under subsection 181.2(3).
2. What is the effect of a write down of long-term investments on the investment allowance under 181.2(4).
POSITION TAKEN
1. Provided the write down in the case of
(a) is pursuant to paragraph 3060.46 of the CICA Handbook for capital assets for real estate property held as an investment),
(b) is an inventory write down permissible under section 10 of the Act, and
(c) is pursuant to paragraph 3050.20 of the CICA Handbook for long-term investments
such write down will not be a reserve within the meaning of subsection 181(1).
2. Where the write down of long-term investments is in acordance with GAAP, the written down value is used for purposes of the investment allowance.
Where the write down of long-term investments is not in accordance with GAAP (and thus may be a reserve), pursuant to subparagraph 181(3)(b)(i), the financial statements are to be restated to conform to GAAP and thus the pre-write down value is to be used for the investment allowance.
B.G. Dodd Financial Industries DivisionRulings Directorate
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