27 January 1994 External T.I. 9323415 F - Refundable Investment Tax Credit

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.

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Attention:  XXXXXXXXXX

Dear Sirs:

This is in reply to your letter dated August 5, 1993, and our telephone conversation of December 3, 1993 requesting our opinion on refundable investment tax credit (RITC) arising from research and development (R&D) expenditures for prior years.

You raised an hypothetical situation involving taxation years 1991, 1992 and 1993 and you would like to know whether or not a taxpayer could file, with a prescribed form amending a return referred to in paragraph 127.1(1)(a) of the Income Tax Act (the "Act"), forms T2038 for those years in order to claim the RITC which, instead of being refunded for each year, would be carried forward to taxation year 1994 to offset the tax payable in that year.

Subsection 127.1(1) of the Act deals with the RITC. Investment tax credit is only refundable to the extent that it cannot be used to reduce federal tax otherwise payable. Paragraph 127.1(1)(b) mentions that where a taxpayer files with a prescribed form amending a return referred to in paragraph 127.1(1)(a) a prescribed form containing prescribed information, «he shall be deemed to have paid, on the day on which the ..... form referred to in paragraph (b) is filed, an amount, on account of his tax» under Part I of the Act for the year.

The Department has an administrative policy in situation involving overpayments. Where the taxpayer is a corporation that is entitled to a refund of its tax and it wants the Department to transfer the overpayment to a subsequent taxation year's instalment account, number 2 should be entered in the refund code box at line 161 of the T2 Return. A similar refund code box appears as well on page 4 of Form T2038.

You should also remember that amounts deemed by subsection 127.1(1) of the Act to be paid on account of Part 1 tax are deemed by subsection 127.1(3) to be amounts deducted under subsection 127(5). Consequently, such amounts reduce the taxpayer's investment tax credit available for carryback or carryforward.

Subsection 13(7.1) of the Act requires that where an amount is deducted under subsection 127(5) with respect to a depreciable property, the capital cost of that property must be reduced by the amount of the credit deducted in respect of that property. Similarly, paragraph 37(1)(e) of the Act requires that where an amount is deducted under subsection 127(5) with respect to SR&ED of a current nature, the amount available for deduction under subsection 37(1) must be reduced accordingly. The reduction to the capital cost under 13(7.1) and the reduction to the "pool" of SR&ED under 37(1)(e) are taken into account in the taxation year subsequent to the one in which an amount is deducted under subsection 127(5).

As stated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, the above opinion does not constitute a ruling and accordingly, is not binding on Revenue Canada, Customs, Excise and Taxation.

Yours truly,

for Acting DirectorManufacturing Industries, Partnerships and Trusts Division Rulings DirectorateLegislative and Intergovernmental Affairs Branch