1999 Ruling 9924013 - RULING - RESERVES

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:

1) Would amounts received as XXXXXXXXXX be included in income under 12(1)(a)?

2) If such amounts are included in income under 12(1)(a) is a reserve under paragraph 20(1)(m) available?

Position:

1) Yes.

2) Yes.

Reasons:

1) The earnings process has not been complete on initial receipt of the XXXXXXXXXX payments and the amounts should not be included in income under section 9 of the Act. The amounts should be included under paragraph 12(1)(a)(i) as it is received on account of services not yet rendered.

2) Where amounts are included in income under paragraph 12(1)(a) a reserve is available pursuant to paragraph 20(1)(m) in respect of services that are reasonably anticipated to be rendered after the end of the year. The requirement to provide XXXXXXXXXX can be considered a service for purposes of paragraph 20(1)(m)(i)

XXXXXXXXXX
XXXXXXXXXX 3-992401
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: Advance Income Tax Ruling Request
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

This is in reply to your letter of XXXXXXXXXX requesting an advance income tax ruling on behalf of the above named taxpayer.

We understand that, to the best of your knowledge, none of the issues raised in this ruling is being considered by a Taxation Services Office or Taxation Centre in connection with an income tax return already filed, is the subject of any notice of objection or is under appeal.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

Facts:

1. XXXXXXXXXX is a Limited Partnership for Canadian tax purposes and also a "Canadian Partnership" within the meaning assigned to that term in section 102 of the Act since all its members are resident in Canada. The taxation year of XXXXXXXXXX ends on XXXXXXXXXX and the taxation year of the XXXXXXXXXX ends on XXXXXXXXXX.

2.

XXXXXXXXXX

3.

XXXXXXXXXX

4.

XXXXXXXXXX

5.

XXXXXXXXXX

6.

XXXXXXXXXX

7.

XXXXXXXXXX

8.

XXXXXXXXXX

(i) XXXXXXXXXX
(ii) XXXXXXXXXX
(iii) XXXXXXXXXX
(iv) XXXXXXXXXX

9.

XXXXXXXXXX

10.

XXXXXXXXXX

11.

XXXXXXXXXX

12.

XXXXXXXXXX

Proposed Transaction

13.

XXXXXXXXXX

14.

XXXXXXXXXX

15.

XXXXXXXXXX

16.

XXXXXXXXXX

a) XXXXXXXXXX

b) XXXXXXXXXX

c) XXXXXXXXXX

i. XXXXXXXXXX

ii. XXXXXXXXXX

iii. XXXXXXXXXX

iv. XXXXXXXXXX

d) XXXXXXXXXX

i. XXXXXXXXXX

ii. XXXXXXXXXX

iii. XXXXXXXXXX

• XXXXXXXXXX
• XXXXXXXXXX
• XXXXXXXXXX

iv. XXXXXXXXXX

v. XXXXXXXXXX

• XXXXXXXXXX
• XXXXXXXXXX

vi. XXXXXXXXXX

vii. XXXXXXXXXX

e) XXXXXXXXXX

f) XXXXXXXXXX

17. XXXXXXXXXX.

Purpose of the Proposed Transaction

18. The purpose of the proposed agreement is to XXXXXXXXXX.

Rulings Requested and Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transaction is carried out as described above, we confirm that:

1. The amounts to be received by XXXXXXXXXX pursuant to the Agreement as described in 16(c)(i) above will be included in the income of XXXXXXXXXX pursuant to paragraph 12(1)(a) of the Income Tax Act (the "Act").

2. Provided that XXXXXXXXXX has included the amounts received in its income pursuant to paragraph 12(1)(a) of the Act, XXXXXXXXXX will be entitled to claim a reserve under paragraph 20(1)(m) of the Act to the extent that services are to be rendered after the relevant taxation year-end.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R3 dated December 31, 1996 and are binding on the Department with respect to Agreements entered into on or before XXXXXXXXXX.

The above rulings are based on the draft Agreement described in paragraph 16 above. Any substantive differences between this version and the final version could invalidate the rulings.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch