28 September 1993 Income Tax Severed Letter 9317095 - Refundable ITCs and the Refundable Portion of Part I Taxes

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.

                                            5-931709
XXXXXXXXXX                                  J. Desparois
                                            (613) 957-8953

Attention: XXXXXXXXXX

September 28, 1993

Dear Sir\Madam:

Re: Refundable Investment Tax Credits (RITC) and the Refundable Portion of Part I Taxes

This is in reply to your letter dated May 17, 1993 addressed to Mr. Hodgins from our Vancouver District Office, wherein you requested an interpretation with respect to the interaction of the investment tax credit (ITC) and the refundable portion of Part I tax provisions. We apologize for the delay in responding to your request.

In your letter, you seem to suggest that a taxpayer might obtain an addition to its "refundable dividend tax on hand account" (through the refundable portion of Part I tax mechanism as described in subparagraph 129(3)(a)(iv) of the Income Tax Act ("the Act") if the taxpayer claims a RITC under section 127.1 of the Act instead of a deduction for ITC pursuant to subsection 127(5) of the Act.

Subsection 129(3) of the Act provides the definition of "refundable dividend tax on hand". When calculating the "refundable dividend tax on hand account", one of the steps requires the determination of the corporation's taxes payable under Part I of the Act (subparagraph 129(3)(a)(iv) of the Act).

Taxes payable under Part I of the Act are determined by section 123 of the Act. One of the exceptions which reduces taxes payable as determined under subsection 123(1) is the deduction for ITC under subsection 127(5). Consequently, when a corporation claims a deduction for ITC to offset federal taxes payable, the refundable portion of Part I tax is reduced accordingly.

On the other hand, considering that subsection 127.1(3) of the Act is applicable "for purposes of the Act", and deems any refund under subsection 127.1(1) to have been deducted by the taxpayer under subsection 127(5), we are of the opinion that the Part I tax payable for purposes of calculating the refundable portion thereof should reflect any deemed offset under subsection 127.1(3) of the Act.

Consequently, a corporation shall not obtain any addition to its refundable dividend tax on hand account by claiming a RITC under section 127.1 of the Act instead of a deduction for ITC under subsection 127(5) of the Act.

However, we are aware that the current T2 form does not reflect such interpretation of the Act.

The above comments are an expression of opinion only and, as explained in paragraph 21 of Information Circular 70-6R2, are not binding on the Department.

We trust that these comments will be of assistance to you.

Yours truly,

for Director Manufacturing Industries, Partnerships and Trusts Division Rulings Directorate Legislative and Intergovernmental Affairs Branch