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.
Subject: Industry Issue Report # 5
Saskatchewan Capital Tax - Resource Surcharge ("Resource Surcharge")
We are writing in reply to your memorandum of January 16, 1991, in which you requested our confirmation that the positions relied upon by you which are reflected in report #5 are current policies of Rulings in regards to the issue of whether paragraph 18(1)(m) is applicable to Resource Surcharges. A copy of report #5 is attached to this memorandum for your quick reference.
We confirm that our general positions with respect to Resource Surcharges, as stated in our letter dated June 27, 1988 (5-5983) and our response to question 6 of the Round Table session of the 1989 Canadian Petroleum Tax Society Annual Conference, remain our current positions on the matter. However, we would ask that you consider a few changes to the report as follows:
- 1. The sentence under the heading of "Tax Implications" should be amended to reflect the tax implications affecting both income and resource allowance. We suggest the following wordings:
A tax levied on the amount of capital employed by a corporation would generally be deductible, subject to the proposed changes in the 1991 budget, in that it is payable for the purpose of gaining or producing income from the corporation's business. If a capital tax such as the Resource Surcharge is computed by reference to the type of production described in paragraph 18(1)(m) then it would be specifically disallowed. For both earned depletion and resource allowance purposes, the former type of tax would be deductible in computing resource profits while the later type of tax would not be.
- 2. According to the budget tabled in the House of Commons on February 26, 1991, the government has proposed that, commencing with the 1992 calendar year, corporations and trusts (other than personal trusts) would be restricted in deducting provincial capital and payroll taxes. The restriction would not apply to property taxes or pension or workers' compensation contributions.
The restriction would be phased in over 3 years and would be fully implemented on January 1, 1994. An offsetting tax allowance would be deductible in computing taxable income. The report should be amended to incorporate the proposed budget changes.
We hope that our comments are helpful to you.
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