7 July 1990 Income Tax Severed Letter - Large corporations tax

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.

Attention: XXX

Dear Sirs:

Re: Large Corporations Tax

We are writing in response to your letter of February 7, 1990 in which you requested our views concerning the meaning of certain expressions contained in proposed sections 181, 181.2 and 181.5 of the Income Tax Act (the Act) as contained in Bill C-28 which was passed by the House of Commons on December 20, 1989 but which, as of this date, has not received Royal Assent (hereinafter Bill C-28).

Our comments are subject to the assumption that legislation will be enacted that is identical to the proposed legislation contained in Bill C-28.

Your first question deals with the question of whether a negative amount in respect of deferred taxes is included in the definition of the term "reserve" in subsection 181(1) of the Act. That definition includes all of the corporation's reserves, provisions and allowances, other than allowances for depreciation or depletion, but including any provision for deferred taxes.

It is our opinion that the definition of reserve does not include a negative amount in respect of deferred taxes. Deferred tax debits are specifically deducted in the calculation of the capital of a corporation under paragraph 181.2(3)(h) of Bill C-28 and, in our opinion, are not also to be deducted in determining the amount of a corporation's reserves for the purposes of paragraph 181.2(3)(b).

In your letter you indicated your opinion that an inappropriate liability for large corporations tax would arise if a company did not amortize its eligible capital amounts for accounting purposes. The intended result of the application of the proposed legislation is a question of tax policy that can only be dealt with by the Department of Finance.

Your second concern deals with the meaning of the phrase ". . . any indebtedness in respect of a lease . . ." in paragraph 181.2(3)(f) of Bill C-28. You refer to Interpretation Bulletin IT-233R dated February 11, 1983 which deals with lease option agreements and sale lease back agreements. Where the form of an agreement between two parties reflects their true intention to enter into a lease, and not some other form of financing, such as a loan, it is our opinion that the indebtedness in respect of such a lease will fall within the bracketed exclusion in paragraph 181.2(3)(f) of Bill C-28.

The opinions expressed herein are not advance income tax rulings and accordingly are not binding on Revenue Canada, Taxation as stated in paragraph 24 of Information Circular 70-6R.