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:
a) Whether the income of a designated airport authority (defined in the Airport Transfer (Miscellaneous Matters) Act) would be subject to a tax audit and further would the tax audit be restricted to only those financial records pertaining to non-exempt income.
b) Whether Revenue Canada is responsible for determining if income derived from an airport business by a designated airport authority qualifies for exemption.
c) Whether we will provide to the author of this request copies of advance income tax rulings, if any, that have been issued to a designated airport authority.
Position TAKEN:
a) Yes. No restriction as to the scope of the audit.
b) No.
c) No.
Reasons FOR POSITION TAKEN:
a) The primary purpose of a tax audit is to monitor and maintain the self-assessment system. The Act requires taxpayers to keep proper records and authorizes the Department to audit these for any purpose related to the administration and enforcement of the Act.
b) Under the Canadian self-assessment system, this determination is a question of fact. Such a determination is to be made by the taxpayer.
c) Confidentiality provisions of the Act prohibit disclosure of information relating to a particular taxpayer without their consent.
Shelagh Jane Woods
Director General
Airport Lease Review 5-991945
Transport Canada - Programs and Divestiture P. Diguer
Place de Ville
Ottawa ON K1A 0N5
July 22, 1999
Dear Ms. Woods:
Re: Paragraph 81(1) (a) of the Income Tax Act (Canada)
This is in reply to your letter dated July 12, 1999, in which you requested our views with respect to various tax issues relating to a corporation that is a designated airport authority pursuant to the Airport Transfer (Miscellaneous Matters) Act (the “Airport Act")
Exempt income
Paragraph 81(1) (a) of the Income Tax Act (Canada) (the "Act") provides that amounts which are declared exempt from tax by virtue of another Act of the Parliament of Canada, that are not otherwise exempted by virtue of a tax convention or agreement with another country, are not to be included in computing a taxpayer's income.
Subsection 8(1) of the Airport Act provides that no tax is payable under Part I of the Act by a corporation or other body on that portion of its taxable income for the year that may reasonably be regarded as being derived from an a,rport business:
a) that is throughout the year a designated airport authority and no part of its income or capital became payable to or otherwise available for the personal benefit of, any member or shareholder of the corporation; and
b) all or substantially all of the gross revenue of the corporation, other than dividends received from a taxable Canadian corporation, in the year was derived from an airport business;
The expressions “designated airport authority", "taxation year" and "airport business" have the meanings assigned them under section 2 and subsection 8(4) of the Airport Act, respectively.
Accordingly, no tax is payable on taxable income derived from an airport business earned by a designated airport authority and which otherwise qualifies under the Airport Act by virtue of paragraph 81(1)(a) of the Act and section 8 of the Airport Act However, a designated airport authority remains subject to tax in Canada on income earned.from other sources both inside and outside Canada.
The tax audit
The Canadian income tax system is one of self-assessment. In it, every corporation and every taxable individual, estate or trust is required by law to file an annual return of income in prescribed form and to determine the taxes payable for the year. After processing, the return may be selected for audit. The primary purpose of a tax audit is to monitor and maintain the self-assessment system. The Act requires taxpayers to keep proper records and authorizes the bepartment to audit these for any purpose related to the administration and enforcement of the Act. As indicated in paragraph 11 of 1C71-14R3 (copy enclosed):
Each year the audit program (the process of selecting returns for audit) is modified in keeping with the number of resources allotted to the Department. In order to make optimum use of limited resources, careful consideration is given to identifying those groups of taxpayers or organizations most in need of attention and selecting audit actions most likely to improve compliance.
As such, a return of a corporation for a taxation year in which it claims to be a designated airport authority with exempt income derived from an airport business may or may not be selected for audit.
If selected, the audit of a return filed by a designated airport authority would likely include a review of amounts that the taxpayer has excluded from income by virtue of section 8 of the Airport Act and paragraph 81(1)(a) of the Act. As indicated in paragraph 23 of 1C71-14R3 (copy enclosed) the scope of a tax audit is determined by the auditor with the advice and direction of a supervisor.
Determination of exempt status
To qualify for exemption, the corporation must not only be a designated airport authority with no part of its income or capital being made available for the personal benefit of any member or shareholder of the corporation, but it also must in fact derive all or substantially all (i.e. 90%) of its gross revenue (other than dividends received from a taxable Canadian corporation) from an airport business in each year for which it seeks exemption under section 8 of the Airport Act. A determination of whether a designated airport authority derived all or substantially all of its gross revenue from airport business in a particular year must be based on the facts of each case which can be obtained only by reviewing, inter alia, all the gross revenues for that year. Such a determination can only be made after the end of the year. Under the Canadian self-assessment system, this detetmination is made by the taxpayer. A determination may be subject to review by the Department during the initial assessment process or through any number of post-assessing activities undertaken by the Department including the tax audit mentioned above.
Confidentiality provisions of the Act prohibit disclosure of information relating to a particular taxpayer without their consent. As such, we cannot provide any information concerning requests for advance ruling requests which may have been made by another taxpayer.
We trust our comments will be of assistance to you.
Yours truly,
Director General
Income Jax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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