29 November 1995 External T.I. 9526505 - WRITE-DOWN OF ASSET WHICH IS NOT INVENTORY

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:

Can we reconcile an earlier position dealing with the write down of assets and the possible application of 18(1)(e) to the Associated Investors decision?

Position:

We maintain our earlier position re 18(1)(e).

Reasons:

Associated Investors dealt with specific facts. It is not authority to ignore specific prohibitions in the Income Tax Act.

		952650
XXXXXXXXXX		Michèle Trotier

Attention: XXXXXXXXXX

November 29, 1995

Dear Sirs:

Re: Sections 9 and 10 of the Income Tax Act ("Act")

This is in reply to your letter of September 28, 1995 wherein you referred to comments made in a memorandum we wrote with respect to the application of paragraph 18(1)(e) of the Act to the write-down of assets which do not constitute inventory of an insurer. You have requested that we reconcile this position to the decision in Associated Investors of Canada Limited, 1967 D.T.C. 5096 (Ex. Ct.).

The Associated Investors case dealt with specific facts although it may be argued that it stands for the proposition that expenses incurred or losses sustained in the ordinary course of a taxpayer's business are generally deductible in computing profit therefrom.

This decision cannot be interpreted as authority to ignore specific provisions contained in the Act. In fact the Court confirmed that a deduction is subject to specific prohibitions set forth in the provisions of the Act.

Accordingly we maintain our general position that the write-down of assets, which in our view generally will be of a contingent nature, will be subject to paragraph 18(1)(e) of the Act. Clearly depending on the facts of a specific situation other provisions such as paragraph 18(1)(b) of the Act may be applicable.

Should you have a specific situation or case in respect of which you would like the Department's views you should direct your query to the relevant Tax Service Office (District Taxation Office).

We trust our comments will be of assistance to you.

Yours truly,

F. Lee Workman
Section Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate