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: Are reserves required to be set-up by provincial legislation deductible?
Position: No.
Reasons: Unless specifically excepted, a reserve is not deductible. See paragraph 7 of IT-215R concerning imposed reserves.
XXXXXXXXXX 990053
J. E. Grisé
Attention:XXXXXXXXXX
February 16, 1999
Dear Sirs:
Re: Reserves
This is in reply to your letter of January 8, 1999 requesting our comments on the treatment for income tax purposes of reserves that are created by a corporation on an annual basis for purposes of establishing a replacement fund for future utility costs.
The corporation is a utility that provides water services. The reserve funds are established pursuant to section 57 of the Utilities Commissions Act for the Province of British Columbia. The funds that are set aside are placed in interest bearing certificates and the interest earned forms part of the replacement fund.
Paragraph 18(1)(e) of the Income Tax Act (the Act) provides that no deduction shall be made when computing the income of a taxpayer in respect of an amount as, or on account of, a reserve, a contingent liability or amount or a sinking fund except as expressly permitted by Part I of the Act. Since the reserve you are concerned with is not expressly permitted by Part I of the Act, the funds set aside cannot be deducted for income tax purposes. Paragraph 18(1)(e) of the Act makes no distinction between voluntary and imposed reserves.
Yours truly,
J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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