7 July 1999 External T.I. 9824115 - PROVINCIAL INVESTMENT TAX CREDIT

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Treatment of provincial ITC earned on property. Is it the amount deducted in the year that reduces capital cost or is it the total ITC earned.

Position:

Amount deducted from provincial tax payable for the year

Reasons:

IT 53R confirms that assistance claimed in the year is received at that time. This would coincide with the requirement of 12(1)(x) which includes assistance in income when received unless excepted under 12(1)(x)(vi) if it has reduced the cost or capital cost of property.

ITC is earned when the property is acquired and until it is renounced under the provincial Act, it appears there is entitlement to it. However, the amount entitled to in the year of acquisition of the property should be restricted to the amount received, for consistency under IT 53R and 174R and based on document # 973080. According to this document, “the Act does not specify the point in time at which entitlement to receive arises; this determination is based on the appropriate meaning assigned....and on the terms of the agreement relevant to a particular situation. Accordingly, for a taxpayer to be entitled to receive a particular amount, all of the pre-conditions to a “right” to receive same must be satisfied”.

XXXXXXXXXX 								F.B. Fontaine
      							982411
Attention:	XXXXXXXXXX 

July 7, 1999

Dear Sirs:

Re: Investment Tax Credit under the Nova Scotia
Income Tax Act (the “Provincial Act”)
Treatment under the Canadian Income Tax Act (the “Act”)

This is in reply to your letter dated September 16, 1998 in which you requested our opinion with respect to a situation where a corporate taxpayer (the “taxpayer”) carries on business in Nova Scotia (the “province”) and acquires depreciable property that would be included in class 43 of Schedule II of the Regulations to the Act.

Under the Provincial Act the taxpayer earns an investment tax credit (“ITC”) on certain property, which is available to reduce its provincial tax payable. However, the taxpayer may renounce entitlement to such ITC. You ask whether the taxpayer’s “undepreciated capital cost”, as defined under subsection 13(21) of the Act, of the particular class would be reduced by the total provincial ITC earned on the property in the year, or by the amount of ITC deducted from its provincial tax payable for the year. Under the Provincial Act, the ITC deduction is limited to the lesser of the ITC and the provincial tax payable for the year.

The situation described appears to be an actual fact situation. Whether or not the situation is a completed or contemplated transaction, paragraph 22 of Information Circular (the “Circular”) outlines the procedure to be followed in respect of such transaction. Accordingly, while we are unable to provide confirmation of the income tax effect of the particular situation, we are prepared to offer the following general comments:

(1) For the purposes of the Act, the provincial ITC earned by a taxpayer in respect of depreciable property, generally, would be considered as assistance from a government. It is our opinion that such assistance would be included in computing income of the taxpayer under paragraph 12(1)(x) of the Act in the year in which the assistance is “received”, unless the amount was excluded therefrom by one of the exempting provisions of that paragraph. Pursuant to subparagraph 12(1)(x)(vi) of the Act, assistance so received by the taxpayer in a year that was otherwise used to reduce the capital cost of such property, would not be included in computing the taxpayer’s income for the year under paragraph 12(1)(x) of the Act.

(2) An amount is considered to have been “received” by a taxpayer at the time it is used to offset an amount owing by the taxpayer. Accordingly, for the purposes of the Act, it is our view that the amount of provincial ITC deducted by the taxpayer (rather than the maximum ITC earned) in computing its provincial tax payable for a year would be considered to be assistance “received” at that time, for the purposes of paragraph 12(1)(x) of the Act. For capital cost allowance purposes, such assistance would be used in the determination of “capital cost”, under paragraph 13(7.1)(f) of the Act and, in A of the definition of “undepreciated capital cost” under subsection 13(21) of the Act, for the year.

(3) Based on the comments above and paragraph 7 of Interpretation Bulletin, IT-53R, it is also our opinion that any balance of the earned provincial ITC that was not deducted in a year because of insufficient tax payable for the year would not reduce the capital cost of the property in that year and may be treated as assistance received in future years for inclusion under paragraph 12(1)(x) of the Act or to reduce the capital cost of such property for the purposes of subsection 13(7.1) and the definition of “undepreciated capital cost” in subsection 13(21) of the Act.

The comments above represent an expression of opinion which, as indicated in paragraph 22 of the Circular, is not an advance income tax ruling and, accordingly, is not binding on Revenue Canada.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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