6 October 1995 APFF Roundtable Q. 48, 9522750 - INPUT TAX CREDIT REBATES

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.

APFF - 1995

Question 48

Input tax credit rebates

In prior taxation years, a corporation omitted to claim a portion of the input tax credits to which it was entitled. These credits were then apparently claimed in a subsequent year. For purposes of its financial statements the corporation adjusted its income for the preceding taxation years to take into account the input tax credits claimed in the subsequent year.

For purposes of the Income Tax Act (“the Act”), when should this corporation take into account for the input tax credits claimed in a return filed under Part IX of the Excise Tax Act for a filing period after the period in which the Goods and Services Tax was paid or became payable?

Answer by the Department of Revenue

Under principles established by case law, an amount would generally not be considered “income” of a taxpayer for a taxation year if it did not have an absolute and unconditional right to that amount. If the amount constituted income for purposes of the Act in a subsequent taxation year, it would be included in the computation of income for that subsequent taxation year, even if it could be subject to adjustment in a preceding period based on generally accepted accounting principles.

Sections 225 and 229 of the Excise Tax Act provide for the payment and rebate of the net tax for a given filing period. Under these sections, the registrant must claim an input tax credit on the return filed for a given period in order to be entitled to a rebate or a reduction in the net tax for that period because of this credit. There is no obligation for the registrant to claim the input tax credit in the return filed for the given period. Therefore, we are of the view that a taxpayer would not have an absolute and unconditional right to an input tax credit that has not been claimed in the return filed for a given period.

Subsection 248(16) of the Act expressly contains express provisions where a taxpayer deducts an amount as an input tax credit in a return filed under Part IX of the Excise Tax Act for a filing period required under that act. If the taxpayer claimed the input tax credit in the return filed for a period subsequent to the one in which the tax was paid or became payable, the input tax credit would then be deemed to constitute assistance received from the government in respect of the property or the service at the end of that period, pursuant to subparagraph 248(16)(a)(ii) of the Act.

Under paragraph 12(1)(x) of the Act, a taxpayer is required to include in computing his income from a business or property amounts of assistance received from a government, to the extent that they are not covered by subparagraphs 12(1)(x)(v) to (viii) of the Act.

Under subparagraph 12(1)(x)(v) of the Act, paragraph 12(1)(x) of the Act does not apply to an amount that was already included in computing the taxpayer’s income or deducted in computing the balance of undeducted outlays or other amounts for the year or for any preceding taxation year. This could occur as the result of an inclusion made under subsection 9(1) of the Act.

Under subparagraph 12(1)(x)(vii), paragraph 12(1)(x) of the Act does not apply to the amount that reduces, under subsection 12(2.2) or 13(7.4) or paragraph 53(2)(s) of the Act, the cost or capital cost of the property or the amount of the expense.

Normally, in this type of situation, when assistance received under subparagraph 248(16)(a)(ii) of the Act relates to a current expense or outlay and is required to be included in computing income under paragraph 12(1)(x) of the Act, the taxpayer may elect, under subsection 12(2.2) of the Act, to reduce the expense or the outlay in the year in which the expense or outlay was incurred, by the amount of the assistance received. The taxpayer’s return of income for the year in which the expense or the outlay was incurred would then be reassessed, notwithstanding the periods stated in subsection 152(4) of the Act. The amount that was thus deducted from the expense or outlay does not have to be included in computing the taxpayer’s income under paragraph 12(1)(x)(vii) of the Act.

When the amount involves the capital cost of a depreciable asset, the taxpayer may elect to reduce the cost of the asset by the amount of the assistance received under subsection 13(7.4) of the Act in the year in which it is deemed to have received the assistance. If the property is a non-depreciable capital asset, this election may be made under subsection 53(2.1), in application of paragraph 53(2)(s) of the Act. No adjustments can be made to a prior return. The amount deducted from the cost or the capital cost does not have to be included in computing the taxpayer’s income under subparagraph 12(1)(x)(vii) of the Act.