10 October 2007 External T.I. 2007-0252431E5 - Softwood Lumber Duty Refund

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 interest portion of a softwood lumber duty refund forms part of aggregate investment income for purposes of subsection 129(4).

Position: No

Reasons: It is income from a business source

XXXXXXXXXX 							2007-025243
T. Harris
(613) 957-2114
October 10, 2007

Dear XXXXXXXXXX:

Re: Softwood Lumber Duty Refunds

This is in response to your email request of September 13, 2007 wherein you requested our interpretation of whether the interest component of a softwood lumber duty refund that is received pursuant to the Canada-U.S. Softwood Lumber Agreement by a softwood lumber producer that is a Canadian-controlled private corporation would be considered as part of the corporation's aggregate investment income for the purposes of section 129 of the Income Tax Act (the "Act").

Written confirmation of the income tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request as described in Information Circular 70-6R5 dated May 17, 2002 issued by the Canada Revenue Agency. A fee is charged for this service. Although, we are unable to provide any comments with respect to your particular fact situation otherwise than in the form of an advance income tax ruling, the following general comments may be of assistance.

In our opinion, the full amount of any softwood lumber duty refund, including related interest, received by a taxpayer that is carrying on the business of producing or exporting softwood lumber products would be included in the recipient's income pursuant to paragraph 12(1)(z.6) of the Act and would, therefore, generally form part of the taxpayer's business income. In this regard, we note that the softwood lumber duties would have been incurred by the taxpayer in the course of carrying on its business of producing or exporting softwood lumber products such that the refund of such duties, including interest thereon, should also be sourced to that business. This interpretation is consistent with principles established in The Queen v. Irving Oil Limited 2002 DTC 6716 and Canadian Marconi Company v. The Queen 86 DTC 6526. Consequently, unless the taxpayer is carrying on a specified investment business within the meaning of subsection 125(7) of the Act, the interest portion of the softwood lumber duty refund should not be included in the taxpayer's aggregate investment income for the purposes of section 129 of the Act.

We trust that our comments, which are provided in accordance with the practice outlined in paragraph 22 of IC-70-6R5, are of assistance.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch