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: Is the early adoption of IFRS-based financial statements acceptable for the Nova Scotia Larger Corporations Tax (NSLCT)?
Position: Yes
Reasons: Section 70 of the NS Income Tax Act provides that subsections 181(2), (3) and (4) of the Act apply for the purpose of the NSLCT. We stated in ITTN 42 that the early adoption of IFRS generally would be acceptable. The Provincial Legislative Amendments Section in LPD agreed with our proposed response.
XXXXXXXXXX
2010-036140
S Fron
March 31, 2011
Dear XXXXXXXXXX :
Re: Early Adoption of IFRS and Nova Scotia Large Corporations Tax
We are responding to your email question regarding the Nova Scotia Large Corporations Tax ("NSLCT") which the Canada Revenue Agency administers and collects on behalf of the province. Specifically, you have asked whether a corporation that adopts IFRS early is permitted to use IFRS based financial statements for purposes of the NSLCT.
The NSLCT is levied on most corporations, except banks, trust companies and loan companies. The NSLCT is based on a corporation's "taxable capital employed in the Province", as determined under subsections 71(2) and (3) of the Nova Scotia Income Tax Act ("NSITA") and is based on the corporation's "taxable capital for the year". Subsection 71(4) of the NSITA provides that the "taxable capital for the year" is the taxable capital determined under section 181.2, 181.3 or 181.4, as applicable, of the federal Income Tax Act ("the Act"). Therefore, the NSLCT is based on the taxable capital determined for federal Large Corporations Tax purposes ("LCT Base").
Furthermore, section 70 of the NSITA provides that subsections 181(2), (3) and (4) of the Act apply for the purpose of determining the NSLCT.
Regular Corporations (Non-financial Institutions)
Based on our review, the NSLCT is the only provincial capital tax that is levied after 2010 on regular corporations (corporations that are not financial institutions). The NSITA currently provides for the elimination of the NSLCT after June 30, 2012.
In determining values and amounts for purposes of the LCT Base, subparagraph 181(3)(b)(i) of the Act requires the use of amounts reflected in the balance sheet presented to the shareholders of the corporation and prepared in accordance with Generally Accepted Accounting Principles ("GAAP"). Where no such balance sheet was prepared, the LCT Base is calculated using amounts that would be reflected if the balance sheet had been prepared in accordance with GAAP.
As noted in Income Tax Technical News 42 (ITTN 42), references to GAAP in the Act can be read as references to IFRS for those entities that report under IFRS.
Where a regular corporation adopts IFRS early (for financial reporting purposes for years beginning after 2008 and before 2011), we confirm that the IFRS-based financial statements are acceptable for calculating the NSLCT.
Insurance Companies
The NSLCT is also levied on insurance companies. Subparagraph 181(3)(b)(ii) of the Act provides that in the case of an insurance corporation that is required by law to report to the Superintendent of Financial Institutions ("SFI") or a similar provincial authority, the amounts reflected in the balance sheet accepted by the SFI or the provincial authority are to be used in determining the carrying values and other amounts for the LCT Base.
As noted in Income Tax Technical News 42, the SFI has prohibited the early adoption of IFRS by all federally regulated financial institutions. Therefore, insurance companies that report to the SFI are also prohibited from adopting IFRS early for purposes of the NSLCT.
Where an insurance company is not required to report to the SFI but a provincial authority, the acceptance of IFRS-based financial statements for purposes of the NSLCT will be dependent on their acceptance by that authority.
We trust that our comments are of assistance to you.
Yours truly,
Steve Fron
Acting Manager
For Director
International & Trusts Division
Income Tax Rulings Directorate
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