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:
is a reserve available to vendor of goods where customer has right to return certain items?
Position:
yes
Reasons:
provided original sale in income
980952
XXXXXXXXXX S. Tevlin
Attention: XXXXXXXXXX
April 22, 1998
Dear Sirs:
Re: XXXXXXXXXX (the “Company”)
We are writing in response to your letter dated April 9, 1998 wherein you requested our opinion as to the proper treatment of the “returns provision” for income tax purposes. In particular you have described the Company’s situation as follows.
The Company sells its products pursuant to a written general terms and conditions of sale agreement which is signed by many of the Company’s customers. The agreement, between the Company and its customers with respect to its products, states under the heading of “Returns” that, “a certain percentage of the dollar value of purchases may be returned”.
This written return policy established with a customer is the basis for the calculation by the Company of its provision for returns used for generally accepted accounting principles.
In accordance with the Department’s position in paragraph 13 of Interpretation Bulletin IT-215R concerning Customer Returns, it is our opinion that, provided the Company recognizes income at the time that it delivers its product to a customer, it would be acceptable for the Company to claim a reasonable deduction for any products that are expected to be returned by the customer.
This letter should in no way be construed as confirming the reasonableness of any “returns provision” calculation that the Company may make.
The foregoing comments are given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996 and are not binding on Revenue Canada, Taxation.
Yours truly,
for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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