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.
Principal Issues: Possible double taxation of Ontario refundable tax credits claimed by a corporation in its 2008 taxation year and reported in its Ontario income in 2008 and federal income in 2009.
Position: If a corporation did not report its Ontario refundable tax credits in its corporate income in the same taxation year for Ontario CT23 and federal T2 returns and it had been subjected to Ontario corporate tax on the same income in both 2008 and 2009, the corporation should contact the Ontario Ministry of Revenue for relief from the double taxation.
Reasons: As explained in the memo.
June 2, 2011
Provincial Legislative Affairs Section Ananthy Mahendran
Legislative Policy Directorate Ontario Corporate Tax Division
International, Provincial and Strategic 905-721-5204
Attention: Robin Maley
Ontario 2008 Refundable Tax Credits and 2009 Harmonized T2 Return
We are writing to update you regarding the possible double taxation of Ontario refundable tax credits claimed by a corporation in its 2008 taxation year and reported in its Ontario income in 2008 and federal income in 2009.
This issue was brought to our attention by a tax preparer. We have not received any other written enquiries and have only had a handful of telephone enquiries regarding this issue. Our Assessing and Benefit Services Branch colleagues have not had any requests for relief from double taxation so it is likely that very few taxpayers may have been subjected to double tax on their Ontario refundable tax credits earned in 2008.
Under subsection 44.1(5) of the Ontario Corporations Tax Act (CTA), which is applicable to taxation years ending before 2009, Ontario refundable tax credits are included in Ontario income as government assistance in the year in which they were earned/claimed. Under paragraph 12(1)(x) of the federal Income Tax Act (ITA), unless otherwise included in income under another provision of the ITA, Ontario refundable tax credits are generally required to be included in federal income in the year in which they are received. For taxation years ending after December 31, 2008, Ontario harmonized its corporate income tax with the federal corporate income tax. The Ontario Taxation Act, 2007 applies to taxation years ending after 2008 and is harmonized with the ITA. Consequently, a corporation that claimed an Ontario refundable tax credit in its 2008 Ontario CT23 return would have included the credit in its Ontario income in 2008 under the Ontario CTA and could have included the credit in federal income in 2009 under federal ITA. If the credit was included in federal income in 2009, it would have been automatically included again in Ontario income when the 2009 harmonized Federal and Ontario Corporate Tax Return (T2) was filed.
This potential double taxation may apply to the following Ontario refundable tax credits: Co-operative Education Tax Credit, Apprenticeship Training Tax Credit, Ontario Book Publishing Tax Credit, Ontario Sound Recording Tax Credit, Ontario Interactive Digital Media Tax Credit, Ontario Computer Animation and Special Effects Tax Credit, Ontario Film and Television Tax Credit, and Ontario Production Services Tax Credit.
As mentioned above, we have had very few enquiries about this potential double taxation issue. In addition, Canada Revenue Agency's (CRA) collective research indicates that the incidence of double taxation is very low because most corporations, as a matter of business practice, included their Ontario refundable tax credits in their corporate income in the same taxation year for both the Ontario CT23 and Federal T2 returns. Tax professionals have confirmed that this is the general practice.
Double Tax Corrective Measures
If a corporation did not report its Ontario refundable tax credits in its corporate income in the same taxation year for Ontario CT23 and federal T2 returns and it had been subjected to Ontario corporate tax on the same income in both 2008 and 2009, the corporation should contact the Ontario Ministry of Revenue for relief from the double taxation.
The following process has been implemented to provide relief:
1. The corporation should submit a letter to Ministry of Revenue, Desk Audit, Corporations Tax, 33 King Street West, PO Box 622, Oshawa ON L1H 8H6 requesting that the OMoR adjust income for Ontario purposes to exclude the amount of the credit that was included in Ontario income twice.
2. The corporation must provide sufficient evidence to demonstrate that this amount was included in Ontario income twice.
Once the information is received by the OMoR and it is confirmed that this amount was included in income twice, an adjustment will be done to correct the double tax.
We trust that these comments will be of assistance to you in implementing a suitable process to provide tax relief.
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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