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:
Whether a grant made by the Government of Alberta pursuant to the Small Business Equity Corporation Act, Statute of Alberta, to a taxpayer for the purchase of venture capital corporation shares will increase a taxpayer's income in accordance with paragraph 12(1)(x) or reduce the ACB of the shares pursuant paragraph 53(2)(k).
Position TAKEN:
The grants will neither increase a taxpayer's income nor reduce the ACB of the shares.
Reasons FOR POSITION TAKEN:
The grant represents "prescribed assistance" in accordance with 6702(a) of the Regulations. The venture capital corporation is a "prescribed venture capital corporation" in accordance with subparagraph 6700(a)(v) of the Regulations and therefore falls within the exception by virtue of clause 53(2)(k)(i)(C) of the Act. Also, it is not included in income under 12(1)(x) as it is a prescribed amount.
L. Barrows
XXXXXXXXXX 952684
Attention: XXXXXXXXXX
January 11, 1996
Dear XXXXXXXXXX:
Re: Government of Alberta Assistance
This is in reply to your letter of September 29, 1995 in which you requested confirmation regarding the tax treatment of grants from the Alberta Government. These provincial grants are made to investors for the purchase of equity shares of prescribed venture capital corporations which are registered as Small Business Equity Corporations under the Small Business Equity Corporations Act, Statutes of Alberta.
We should advise that written confirmation of the tax implications inherent in a particular fact situation is only given by this Directorate when there is a proposed transaction which is the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. However, in response to your request, we can provide the following general comments which are not binding on the Department.
Whether or not government assistance is in respect of income or capital is a question of fact. Where government assistance is in respect of capital property other than depreciable property, paragraph 53(2)(k) of the Income Tax Act (the "Act") provides for a reduction to the adjusted cost base of the property by the amount of the assistance received. There are exceptions to this general provision and, in this regard, clause 53(2)(k)(i)(C) of the Act provides an exception for "the amount of prescribed assistance that the taxpayer has received or is entitled to receive in respect of, or for the acquisition of, shares of a prescribed venture capital corporation ...".
For the purposes of clause 53(2)(k)(i)(C), paragraph 6702(a) of the Income Tax Regulations (the "Regulations) includes as "prescribed assistance" "the amount of any assistance received from a province that has been provided in respect of, or for the acquisition of, a share of the capital stock of a prescribed venture capital corporation". In addition, for the purposes of clause 53(2)(k)(i)(C), subparagraph 6700(a)(v) of the Regulations, provides that a "prescribed venture capital corporation" includes a corporation that is registered under the provisions of the Small Business Equity Corporations Act Statutes of Alberta 1984, c.S-13.5. Accordingly, in our view, a grant from the Alberta Government as described above falls within the exception provided for in clause 53(2)(k)(i)(C) of the Act such that the grant does not reduce the taxpayer's adjusted cost base of the acquired prescribed venture capital corporation shares.
Paragraph 12(1)(x) of the Act generally provides that certain inducements, reimbursements, contributions, allowances and assistance received by a taxpayer in the course of earning income from a business or property will be included in income to the extent that they have not otherwise reduced the cost of a property or the amount of an outlay or expense. This provision further provides that an amount of assistance received by a taxpayer is not included in the taxpayer's income under paragraph 12(1)(x) if it is a prescribed amount. Paragraph 7300(b) of the Regulations defines a "prescribed amount" for the purposes of paragraph 12(1)(x) to include "prescribed assistance" within the meaning assigned by section 6702 of the Regulations. In our view, based on the meaning of "prescribed assistance" in paragraph 6702(a) of the Regulations, as reflected in the previous paragraph, a grant from the Alberta Government as described above is not to be included in a taxpayer's income by virtue of paragraph 12(1)(x) as it is a prescribed amount.
We trust these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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