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.
Principal Issues:
In the case of a financial lease by a financial institution, is the lease receivable, which is reflected under "loans" on the institution's balance sheet, a tangible property of the institution for purposes of 181.3(1)(a)?
Position TAKEN:
No, but where it is a lease at law and not a sale, if the leased property is tangible, the carrying value of the leased property must be included in the capital calculation of the financial institution.
Reasons FOR POSITION TAKEN:
A receivable is not a tangible property, but the leased property may be.
Revenue Canada Round Table
TEI Conference
May 16, 1994
Question VI-3
WHETHER LEASE RECEIVABLES CONSTITUTE TANGIBLE PROPERTY
Pursuant to subsection 181.3(1), the taxable capital employed in Canada of a financial institution for a taxation year includes the carrying value at the end the year of an asset that is tangible property used in Canada. For the purpose of determining the carrying value of a corporation's assets, in the case of a bank or insurance corporation, subparagraph 181(3)(b)(ii) provides that the amount reflected in the balance sheet as accepted by the Superintendent of Financial Institutions, or similar authority, shall be used.
In keeping with the requirements of the Superintendent of Financial Institutions (which in this instance are also consistent with generally accepted accounting principles), an amount owing to a financial institution under a financial lease contract is shown on the books of account as a "lease receivable". Lease receivables form part of the "Loans" for balance sheet classification purposes. This accounting treatment represents a financial lease as a credit device.
Does the Department agree that lease receivables do not constitute tangible assets for purposes of computing the Large Corporation's Tax of a financial institution? If not, what is the Department relying upon to conclude that lease receivables do constitute tangible property?
Department's Position
For purposes of our response, we assume that the property that is the subject of the lease is tangible property and that the contract is at law a lease and not a sale.
We do not generally think of a receivable as tangible property, and would not therefore consider a lease receivable as tangible property of a financial institution for purposes of subsection 181.3(1).
However, it is our view that the property which is the subject of the lease, which property is owned by the financial institution, would be tangible property of the financial institution for purposes of subsection 181.3(1).
It would appear that the carrying value of the tangible property, being the leased property, would be the amount of the lease receivables reflected in the balance sheet of the financial institution.
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