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 interest is exigible on an adjustment to foreign tax?
Position: 1. Interest is exigible on the adjustment to Canadian tax payable; however it is not charged for the first 90 days after a taxpayer is first advised of the adjustment.
2. No interest is exigible on any deficient monthly instalment amounts.
Reasons: 1. s. 161(6.1).
2. Reg. 5301(10) and s. 248(1).
September 8, 2011
Sudbury Taxation Centre HEADQUARTERS
Income Tax Rulings
Directorate
Attention: Michèle Beaulieu, Team Leader Lindsay Frank
Appeals Division (613) 948-2227
2011-041112
Exigibility of Interest on Foreign Tax Adjustment
This is in reply to a request from Christine Lockwood for a technical interpretation regarding the exigibility of interest, following an adjustment to foreign tax payable.
Subsection 126(2) of the Income Tax Act (the "Act") permits a corporation to claim a tax credit in respect of foreign taxes levied on business income. In the instant case, a corporation filed amended returns for Year 1 and Year 2 to reflect a reduced amount of foreign tax payable as a result of losses carried back from Year 3.
An adjustment to foreign tax payable could result in an adjustment to Canadian tax payable. In this respect in the instant case, the reduced amount of foreign tax payable decreased the foreign tax credit and increased Canadian tax payable. While interest is payable on the adjustment to Canadian tax payable, paragraphs 161(6.1)(a) and (c) provide that such interest will not be exigible for the period ending ninety days after a taxpayer is first advised of the adjustment.
Furthermore, no interest will be assessed on any deficient monthly instalment amounts that arise from the adjustment. To that end, under subsection 5301(10) of the Income Tax Act Regulations, tax payable resulting from "specified future tax consequences" is excluded from amounts used in determining a corporation's instalment base. Subsection 248(1) of the Act defines a "specified future tax consequence" to include the consequence of an adjustment described in subsection 161(6.1).
Should you have any questions or require additional information, please do not hesitate to contact Lindsay Frank at the number provided at the outset of this memorandum.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
International and trusts Division
Income Tax Rulings Directorate
c.c. Christine Lockwood
Appeals Division
Sudbury Taxation Centre
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