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: Can taxpayers claim deductions for fines and penalties imposed after March 22, 2004 under paragraphs 280(1)(a), 280(1.1)(a) or 280(2)(a) of the Excise Tax Act (the "ETA") on a GST/HST amount outstanding as of March 31, 2007 that is paid or payable in a taxation year that began after April 1, 2007.
Position: Yes.
Reasons: It remains our position that for the ease of administration, a penalty imposed after March 22, 2004 under any of paragraphs 280(1)(a), 280(1.1)(a) and 280(2)(a) of the ETA, on a GST/HST amount outstanding as of March 31, 2007 will be deductible in the year in which it was paid or became payable even if the penalty is imposed in a taxation year that began after April 1, 2007 subject to the GST/HST liability arising in the course of earning income from a business or property.
XXXXXXXXXX 2011-042360
M. Gauthier
(613) 948-1143
December 9, 2011
Dear XXXXXXXXXX ,
Re: Repeal of proposed paragraphs 7309(a) and (c) of the Income Tax Regulations
We are writing in reply to your email of October 5, 2011 in which you asked for a confirmation on the administrative position outlined in E 2007-0236641I7 with respect to the deductibility of a penalty imposed after March 22, 2004 under paragraphs 280(1)(a), 280(1.1)(a) or 280(2)(a) of the Excise Tax Act (the "ETA") on a GST/HST amount outstanding as of March 31, 2007, where the penalty is paid or payable in a taxation year that began after April 1, 2007.
Our comments:
Section 67.6 of the Income Tax Act (the "Act") prohibits the deductibility of fines and penalties other than prescribed fines or penalties and is applicable to fines and penalties imposed after March 22, 2004. The prescribed fines and penalties are found in section 7309 of the Income Tax Regulations (the "Regulations") and includes penalties imposed under paragraphs 280(1)(a), 280(1.1)(a) and 280(2)(a) of the ETA.
Penalties that were imposable under paragraphs 280(1)(a), 280(1.1)(a) and 280(2)(a) of the ETA were replaced with interest-only provisions by March 31, 2007. Consequently, paragraphs 7309(a) and (c) of the Regulations were repealed effective for taxation years that began on or after April 1, 2007.
You submitted that the effective date for the repeal of paragraphs 7309(a) and (c) of the Regulations would suggest that those penalties imposed during any taxation year that began after April 1, 2007 would not be deductible.
We confirm that the comments found in technical interpretation E 2007-0236641I7 continue to represent our position: for the ease of administration, a penalty imposed after March 22, 2004 under any of paragraphs 280(1)(a), 280(1.1)(a) and 280(2)(a) of the ETA, on a GST/HST amount outstanding as of March 31, 2007, will be deductible in the year in which it was paid or became payable even if the penalty is imposed in a taxation year that began after April 1, 2007, subject to the GST/HST liability arising in the course of earning income from a business or property.
We hope this information is of assistance to you.
Yours truly,
Guy Goulet CA, M. Fisc.
Manager
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency
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