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: Whether the unclaimed amounts included in income for accounting purposes should be included in the calculation of taxable income.
Reasons: The unclaimed amounts, such as dividend, interest, and the proceeds of disposition of property, included in the accounting income of a taxpayer remain a liability until such time as the amount is issued to the person beneficially entitled to it. Therefore, these unclaimed amounts should not be included in taxable income.
February 23, 2012
Toronto Centre Tax Services Office HEADQUARTERS
Audit Division Income Tax Rulings
Attention: Jaish Parmar Gillian Godson
Application of Subsection 153(4) Unclaimed Amounts
We are writing in reply to your inquiry for a technical interpretation regarding the application of subsection 153(4) of the Income Tax Act (the "Act"). In particular, you have requested confirmation of our position outlined in Rulings document 59400(E), wherein we expressed the view that unclaimed amounts subject to tax pursuant to subsection 153(4) of the Act, which are subsequently included in the taxpayer's income for accounting purposes, are not required to be included in the calculation of the taxpayer's income for tax purposes.
Pursuant to subsection 153(4) of the Act, a taxpayer is required to remit a tax sixty days after the year end with respect to unclaimed amounts. Unclaimed amounts are dividends, interest, or proceeds of disposition received by the taxpayer after 1984 and prior to the taxation year that remain unclaimed at the end of the taxation year by the person beneficially entitled to the amount. Although these unclaimed amounts are a liability, in some situations, the taxpayer may include the unclaimed amounts (net of the tax remitted under 153(4) of the Act) in accounting income due to the fact that the amounts have remained unclaimed for an extended period of time.
In your inquiry, you have expressed the opinion that in situations where the taxpayer has included unclaimed amounts in income for accounting purposes, these unclaimed amounts should also be included in income for tax purposes. However, Rulings document 59400(E) provides a contrary position. In that document we indicated that with respect to unclaimed amounts, the person beneficially entitled to the amount retains the right to the amount and the amount would remain a liability of the taxpayer. Accordingly, we took the position that the unclaimed amount would not be included in the calculation of the taxpayer's taxable income regardless of the accounting treatment. Furthermore, we stated that unclaimed amounts should only be taxed under subsection 153(4). We confirm that this position is still our view.
In addition, you have stated in your inquiry that the taxpayer's liability with respect to the unclaimed amounts is "extinguished as the amounts are stale dated", and as a result these unclaimed amounts should be included in the taxpayer's calculation of taxable income. However, as we are not aware of any legislation to support the position that a liability does not exist, we do not agree that the liability is extinguished in situations where the beneficial owner of the amount remains unknown. The unclaimed amounts remain a liability of the taxpayer until such time as the amount is issued to the person beneficially entitled to it. Accordingly, we are of the view that the unclaimed amount would not be included in the taxpayer's calculation of income for tax purposes. This is consistent with the position set out in Rulings document 59400(E).
Furthermore, it is our view that the unclaimed amounts will have been effectively taxed because of the operation of subsections 153(4) and (5). In that regard, we are of the view that it would be inappropriate to subject the amount to further imposition under Part I of the Act.
We trust that these comments will be of assistance.
Terry Young, CA
for the Director
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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