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.
5-940560
Peter Lee
XXXXXXXXXX (613) 957-8977
Attention: XXXXXXXXXX
July 25, 1994
Dear Sirs:
Re: U.S. Countervailing Duties on Canadian Softwood Lumber
In your letter of February 25, 1994, you summarized your understanding of the facts and your conclusion on the treatment of the payments made by Canadian lumber companies in respect of the subject matter. Thank you for this information in assisting us in our study of the issues - whether the estimated U.S. countervailing duties on Canadian softwood lumber (the "CVD") is deductible in computing income of Canadian exporters of such softwood lumber (the "Canadian exporters") for the purposes of the Income Tax Act (Canada) (the "Act") and what would be the income tax treatment in respect of any refund of such CVD.
We are writing to inform you that we have completed our study of the above-noted issues and that we do not agree with your conclusion in respect of the subject matter. Our rationale is provided in the following paragraphs.
Your Views
In your view, the CVD amounts, whether represented by security or cash payments, are deducted by Canadian exporters in computing income for financial statement purposes in accordance with generally accepted accounting principles. It is also your view that the amount of CVD paid is deductible in computing income for the purposes of the Act as an outlay incurred in the profit making process.
Our Views
Based on the above-noted information and the information provided to us by the Department of Foreign Affairs and International Trade in respect of the subject matter and on our analysis thereof, we have concluded that the actual CVD would be levied by U.S. Customs only after an administrative review by the Department of Commerce (U.S.) has been completed and all of the appeal processes under the Canada-U.S. Free Trade Agreement (the "FTA") have been exhausted. The CVD cash deposits are refundable deposits and the CVD bonds are cancellable bonds and they do not have the quality of expenses to the Canadian exporters because they represent contingent liabilities. Consequently, none of the amounts of such cash deposits and bonds are deductible by the Canadian exporters by virtue of paragraph 18(1)(e) of the Act in the year they were paid or posted as the case may be.
Even though so far Canada has been successful in the dispute with the United States regarding the CVD, the cash deposits and the bonds in respect of the estimated CVD would not be refunded to the Canadian exporters or be cancelled until the final decision by an FTA extraordinary challenge committee in respect of either the issue of subsidy or injury is made in favour of Canada. If there are refunds of such cash deposits, the refunded amounts would not be required to be included in computing income of the recipients. Similarly, the amounts of cancelled bonds would not be required to be included in computing income of the Canadian exporters who had posted the bonds. The amount of any interest on the refunded cash deposits would have to be included in computing income of the recipients in the year such interest becomes receivable. However, if a final decision, after the administrative review referred to in the above paragraph has been completed and all of the appeal processes under the FTA have been exhausted, is made in favour of the United States with respect to both the issues of subsidy and injury and in setting the actual CVD rate, the amounts of the cash deposits and the bonds would be deductible in computing income of the Canadian exporters in the year such decision is made, to the extent that such amounts do not exceed the actual CVD.
Yours truly,
A/Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Policy and Legislation Branch
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