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:
Will 66(12.66), and 66(12.601) permit a corporation to make two renunciations for a total of more than $2 million "specified CDE" to a flow-through shareholder, so that the two renunciations are effective in the same taxation year of the shareholder?
Position TAKEN:
The 60 day rule for the renunciation of expenditures that were incurred during the first 60 days of a calendar year will permit the renunciation, effective December 31st of the previous year, of "specified CDE" incurred during the first 60 days of the subsequent year.
Reasons FOR POSITION TAKEN:
66(12.602) controls the calendar year "specified CDE" is incurred. 66(12.66) permits renunciation of cost incurred during first 60 days of calendar year, effective December 31st of the previous year.
XXXXXXXXXX 5-942202
Attention: XXXXXXXXXX
November 14, 1994
Dear Sirs:
Re: Specified Canadian Development Expense
This is in reply to your letter dated August 26, 1994 wherein you requested our interpretation of subsections 66(12.601), 66(12.602), 66(12.61) and 66(12.66) of the Income Tax Act (the "Act").
In this regard we provide you with the following general comments which may be of assistance to you. Our comments, however, should not be construed as confirming the income tax consequences for a particular transaction.
Hypothetical Situation
1.Company X incurred Canadian development expense ("CDE") of $2 million during the 1994 calendar year (the "1994 Expenses"). No other resource expenses were or would be incurred in the year.
2.The 1994 Expenses would be renounced effective December 1, 1994 to flow-through shareholders in accordance with paragraph 66(12.61)(a) and subsections 66(12.601) and 66(12.602) of the Act.
3.During the first 60 days of the 1995 calendar year, Company X would incur $2 million CDE (the "1995 Expenses"). No other resource expenses would be incurred in the year.
4.Within 90 days after the end of the 1994 calendar year, Company X would renounce the 1995 Expenses to flow-through shareholders in accordance with subsections 66(12.66), 66(12.601) and 66(12.602) of the Act.
In the above-noted hypothetical situation, it is our view that for the purpose of subsection 66(12.6) or 66(12.601) of the Act, and not for the purpose of subsection 66(12.602) of the Act, paragraph 66(12.61)(a) of the Act would apply to deem the 1994 Expenses to be CEE incurred by the flow-through shareholders on December 1, 1994 and subsection 66(12.66) of the Act would also apply to deem the 1995 Expenses to be CEE incurred by the flow-through shareholders on December 31, 1994. Accordingly, notwithstanding that there might be an aggregation of $4 million CDE to be renounced effective in the 1994 calendar year, the requirement under paragraph 66(12.602)(c) of the Act (i.e. to have no more than $2 million of CDE incurred in either 1994 or 1995 calendar year) would be met. We note that the $4 million amount might be reduced by virtue of paragraph 66(12.602)(b) of the Act, which will limit the amount to be renounced to flow-through shareholders to the amount of the balance of Company X's cumulative Canadian development expense on the effective date of the renunciation.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 21 of Information Circular 70-6R2, the above comments do not constitute an advance income tax ruling and accordingly are not binding on the Department.
Yours truly,
for A/Director
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Policy and Legislation Branch
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