16 March 1995 External T.I. 9505555 - FARMER'S INSURER - INCOME CALCULATION

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

Principal Issues:

WHETHER SUBSECTION 149(4.3) REQUIRES THAT ALL OF AN INSURER'S LISTED DISCRETIONARY DEDUCTIONS AND RESERVES, FOR PREVIOUS YEARS, BE DEDUCTED OR WHETHER THESE DEDUCTIONS AND RESERVES ONLY APPLY TO THE PORTION OF THE INSURER'S TAXABLE INCOME EXEMPTED BY PARAGRAPH 149(1)(t) IN THOSE PREVIOUS YEARS.

Position TAKEN:

THERE IS NO APPORTIONMENT OF THE LISTED DISCRETIONARY

DEDUCTIONS AND RESERVES. THE FULL AMOUNT, CALCULATED AS THE GREATER OF PARAGRAPHS 149(4.3)(a) & (b), MUST BE DEDUCTED TO ARRIVE AT THE EXEMPT PORTION OF TAXABLE INCOME UNDER PARAGRAPH 149(1)(t).

Reasons FOR POSITION TAKEN:

LEGISLATION.

			950555
XXXXXXXXXX		G. Donell

Attention: XXXXXXXXXX

March 16, 1995

Dear Sir:

Re: Farmer's and Fisherman's Insurer - subsec. 149(4.3)

We are writing in reply to your memorandum dated February 9, 1995 as to whether subsection 149(4.3) of the Income Tax Act applies to deem the deduction of 100% of the discretionary deductions and reserves for a preceding taxation year or whether a lesser amount is deemed deducted based on the proportion determined under subsection 149(4.1) of the Income Tax Act.

Unless otherwise stated, all references to statute are to the Income Tax Act (the "Act").

You have stated that the preamble to subsection 149(4.3), particularly the words "...in respect of which paragraph 149(1)(t) applied..." are the source of the confusion and have lead you to the interpretation that the discretionary deductions and reserves (paragraphs 20(1)(a), 20(7)(c) and 138(3)(a) and section 140) for preceding taxation years need only be those that relate to the exempt portion of the taxable income determined under paragraph 149(1)(t). We do not agree with this interpretation.

In the context the words you have referred to relate to "...each taxation year preceding the particular year...". In other words the discretionary deductions and reserves are deemed to have been deducted in each taxation year preceding the year in which the determination of the exempt portion of the taxable income is being made under paragraph 149(1)(t) but only with respect to those taxation years in which the exemption also applied. Without this qualification, within subsection 149(4.3), the words would lead to an absurdity and result in a deemed maximum claim or deduction in all of the insurer's taxation years preceding the taxation year in which the paragraph 149(1)(t) exemption was applicable. Subsection 149(4.1) would be of little assistance since, with respect to paragraph 149(1)(t), its' words only refer to "...an insurer described in paragraph (1)(t)...". In each of the relevant preceding taxation years the insurer will be deemed to have deducted 100% of the indicated amounts.

We trust that the above comments are of assistance to you.

Yours truly,

Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch