7 December 1993 Income Tax Severed Letter 9332865 - Large Corporation Tax

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.

                 RULINGS DIRECTORATE
                CORRESPONDENCE SUMMARY

DOCUMENT TYPE:

         Opinion

PRINCIPAL ISSUES:

         Part I.3 Tax—Netting of amounts re: capital and
         investment allowance.

POSITION TAKEN:

         Not allowed.

REASONS FOR POSITION TAKEN:

         Unable to ignore specific wording of the Act.

LEGAL:

FINANCE OPINION:

JURISPRUDENCE:

RCT PUBLICATIONS:

HAA NUMBER:

         5638-3
                                           933286
XXXXXXXXXX                                 (613) 957-8953

Attention: XXXXXXXXXX

January 10, 1994

Dear Sirs:

Re: Large Corporation Tax

We are writing in response to your correspondence of November 4, 1993 concerning the inclusion of an amount represented by bankers' acceptances in the computation of the capital of a corporation pursuant to paragraph 181.2(3)(d) of the Income Tax Act (the "Act") for purposes of Part I.3 tax on large corporations.

In the particular case to which you refer, the proceeds raised upon the issuance of the bankers' acceptances are deposited with a bank which then provides operating loans to affiliates of the corporation. The lending bank looks to the deposit account as security for the loans to the affiliates. You have noted that, by virtue of this arrangement, the corporation is effectively acting as the banker for the affiliated corporations and, accordingly, should be able, for the purpose of computing its capital pursuant to subsection 181.2(3) of the Act, to offset its indebtedness represented by bankers' acceptances with the amount on deposit with the bank. In your view, only the amount by which the indebtedness represented by the bankers' acceptances exceeds the amount on deposit would be included in the calculation of the capital of the corporation.

We are, unfortunately, unable to concur with your interpretation of the provision. Paragraph 181.2(3)(d) of the Act provides that the capital of a corporation includes, inter alia, the amount of indebtedness of the corporation represented by bankers' acceptances. This inclusion is not limited by any qualifying or non-qualifying use of the proceeds of the issuance of the bankers acceptances. Similarly, an amount is included in the investment allowance of a corporation pursuant to subsection 181.2(4) of the Act only to the extent that it is an asset of the corporation that is, inter alia, a loan or advance to another corporation other than a financial institution. In the case at hand, the amount on deposit with the bank would not qualify for inclusion in the investment allowance as a bank is a "financial institution" as that term is defined in subsection 181(1) of the Act.

To the extent that you believe that the above result is inappropriate in terms of tax policy, you may wish to pursue this concern with officials of the Department of Finance.

We trust that this is the information which you require.

Yours truly,

for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch