Section 34
Subsection 34(1)
Administrative Policy
16 June 2014 Internal T.I. 2014-0525961I7 - ON Tax and Brazilian Tax Sparing
Was tax deemed to have been paid (a "tax spared amounts") under Art. 22, para. 3 of the Canada-Brazil Treaty eligible for a foreign tax credit (an "ON FTC") under s. 34(1) of the Taxation Act, 2007 (Ontario) ("the TA")? The Directorate noted that as the tax spared amounts are not deemed to have been paid to Brazil by the Treaty for purposes of s. 126, they cannot be claimed thereunder, and that as Art. 22, para. 2 applies independently of s. 126, a taxpayer can claim a federal FTC in respect of tax spared amounts under that paragraph of the Tax Treaty, stating:
As section 126 of the Act does not apply to such a Federal FTC claim, none of the provisions of section 126 of the Act, including subsections 126(4.1) and (4.2) can be applied to deny such a Federal FTC claim.
Turning to the ON FTC, Art. 22, paras. 2 and 3 are not "federal application rules" for the purposes of granting ON FTCs under section 34(1) of the TA as they operate independently of s. 126. Accordingly:
any amount claimed as an ON FTC under subsection 34(1) of the TA must be for an amount paid to the government of a country other than Canada, as required by section 126 of the Act as read without reference to the Tax Treaty. Therefore tax spared amounts are not eligible for an ON FTC… .
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Treaties - Income Tax Conventions - Article 24 | Brazilian tax-sparing rules operate independently of s. 126 | 140 |
Subsection 34(2)
Administrative Policy
17 August 2021 External T.I. 2020-0842981E5 - Ontario foreign tax credit
Canco earns $100 of investment income in each of foreign Country A and Country B, and incurs a Canadian source loss of $100, so that its net income and taxable income is $100 and its Canadian federal income tax otherwise payable (“FTOP”) at the 15% federal tax rate is $15. The “non-business-income tax” (“NBIT”) paid in each country on such investment income is $10. Canco’s Ontario domestic factor and Ontario allocation factor are both 1, and the Ontario corporate tax rate is 11.5%.
CRA first noted that s. 34(1) of the Taxation Act, 2007 (“TAO”) allowed a provincial FTC equal to the lesser of the two amounts calculated under ss. 34(2) and (3), and that the s. 34(2) amount respecting the foreign investment income for each such country was $11.50 (i.e., 11.5% * $100).
Regarding s. 34(2), which required the determination of any excess of (A) the NBIT paid to each country, of $10, over (B) the amount deductible by Canco “in respect of the foreign investment income for the year” under ITA s. 126(1), CRA stated:
[T]he wording of element B in subsection 34(2) of the TAO and the definition of “foreign investment income” in subsection 34(5) of the TAO require that the FTOP be apportioned among the countries in order to determine, for purposes of element B in subsection 34(2) of the TAO, “the amount deductible by the corporation in respect of the foreign investment income for the year under subsection 126(1)” on a country-by-country basis.
After indicating that “[o]ne possible method” for so allocating the FTOP to a foreign country would be using the ratio that the amount calculated under ss. 126(1)(a) and (b) in respect of that foreign country to the aggregate amounts so calculated respecting all relevant foreign countries, CRA noted that in this example, this approach would result in the allocation of half of the $15 maximum amount deductible by Canco under s. 126(1) to each of Country A and Country B, so that the “amount deductible by [Canco] in respect of the foreign investment income for the year under subsection 126(1)” in respect of each of Country A and Country B would be $7.50.
CRA then stated:
On that basis, the amount calculated under subsection 34(2) of the TAO in respect of Country A would be $2.50 (being the Ontario domestic factor of 1, multiplied by the excess of $10 of the NBIT paid to Country A over $7.50) and not nil. The amount determined under subsection 34(1) of the TAO in respect of Country A would also be $2.50 (being the lesser of the amounts calculated under subsections 34(2) and (3) of the TAO in this specific case scenario). The same result would be obtained when applying section 34 of the TAO to Country B. …
In our view, the phrase “the amount deductible … under subsection 126(1) of the Federal Act” in subsection 34(2) of the TAO can be read as supporting the country-by-country allocation as described above in the circumstances.
Section 46
Subsection 46(1)
Eligible pre-2009 Winding-up
Administrative Policy
14 April 2010 External T.I. 2008-0293981E5 F - Loi de 2007 sur les impôts de l'Ontario
In the course of a general discussion, CRA provided the following example:
[A] winding-up would be an eligible pre-2009 winding-up as defined in paragraph (a) in a situation where a subsidiary with a taxation year-end of April 30, 2009 distributed its assets on December 1, 2008 to its parent with a taxation year-end of December 31, 2008 without obtaining its formal dissolution. Since the subsidiary was not formally dissolved in this example, its completion time will be after December 31, 2008, i.e., April 30, 2009. In addition, the parent's year-end date in which it received the assets will be before January 1, 2009, that is, December 31, 2008, since it received them on December 1, 2008.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Other Legislation/Constitution - Ontario - Taxation Act 2007 - Section 46 - Subsection 46(1) - Transition Time | amalgamation in 2008 results in a transition time corresponding to the amalgamation time | 243 |
Transition Time
Administrative Policy
14 April 2010 External T.I. 2008-0293981E5 F - Loi de 2007 sur les impôts de l'Ontario
What is the "transition time" of a corporation resulting from an amalgamation where both predecessor corporations had a transition time? CRA responded:
Where the amalgamation took place between January 2, 2008 and January 1, 2009 inclusive, the amalgamated corporation has a transition time that generally corresponds to the date of the amalgamation. In other words, unless it has elected a shortened taxation year end after the amalgamation, the amalgamated corporation will have a taxation year beginning on the amalgamation date somewhere between January 2, 2008 and January 1, 2009 inclusive, which will be its transition time. Pursuant to paragraph 1 of subsection 51(1), the amalgamated corporation in these situations will generally be deemed to be the same corporation as, and a continuation of, each of its predecessor corporations. Consequently, the amalgamated corporation to which paragraph 1 of subsection 51(1) applies will be able to aggregate, under the normal amalgamation rules, all amounts relating to the total federal balance and the total Ontario balance of the predecessor corporations. As a result, the corporation will calculate its total federal balance and its total Ontario balance under subsections 48(4) and (6).
However, where the amalgamation took place on or after January 2, 2009, the amalgamated corporation will not have a transition time since it will not have a taxation year that includes the beginning of 2009. The predecessor corporations will therefore calculate their transitional debits and tax credits on their respective transition times. Where the amalgamation is an eligible amalgamation, paragraph 3 of subsection 51(1) will apply.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Other Legislation/Constitution - Ontario - Taxation Act 2007 - Section 46 - Subsection 46(1) - Eligible pre-2009 Winding-up | completion time does not occur until formal dissolution | 107 |
Subclause 46(2)(h)(v)
Administrative Policy
19 August 2013 Internal T.I. 2013-0474031I7 - Ontario Transitional Tax Debit/Credit
A requested increase by a taxpayer whose control had been acquired to the federal CCA and CEC claimed and an increase to the federal non-capital losses was not considered to be tainting transactions as "requested adjustments to the federal pool balances puts the taxpayer in a similar position to what it would have been had the non-capital losses not been removed from the total federal and total Ontario pool balances."
The taxpayer also requested a decrease in Ontario CCA claims and an offsetting reduction to the Ontario non-capital losses, thereby creating a much larger transitional tax credit balance as the Ontario UCC/CECA balances were increased. The offsetting reduction in the Ontario non-capital losses had no effect on the pool balance difference because the non-capital losses were excluded from the total Ontario balance. These were tainting transactions (i.e., "events"), so that s. 46(2)(h)(v) shortened the amortization period.
Section 54
Subsection 54(1)
Subsection 54(2)
Clause 54(2)(a)
Administrative Policy
14 November 2016 Internal T.I. 2015-0600281I7 - Ontario Corporate Minimum Tax - net income
Does net income or net loss for Ontario Corporate Minimum Tax (“CMT”) purposes mean “Total comprehensive income” reported on the “Statement of Comprehensive Income” prepared in accordance with International Financial Reporting Standards (“IFRS”). The Directorate responded:
[A]l references to GAAP in… tax legislation [are] references to “IFRS” for entities that report under IFRS. Since IFRS reporting is considered Canadian GAAP, it is appropriate to use “Total comprehensive income”, representing a combination of profit or loss and other comprehensive income (“OCI”), as a starting point for computing ANI/ANL [adjusted net income/adjusted net loss]. Since certain items included in OCI will not be recognized in a corporation’s Profit or Lossadjusted net income/adjusted net loss, they would be missed in computing ANI/ANL if the corporation were only to use the Profit or Loss component from the “Statement of Comprehensive Income”. For example, a defined benefit plan remeasurement is not recognized in Profit or Loss but presented as a component of OCI and should be included in ANI/ANL excluding any related tax effect.
Some of the items reported in “Total comprehensive income” will be removed in computing ANI/ANL. Additional adjustments are required pursuant to the definitions of “B” and “C” in subsection 57(1), and the rules contained in Ontario Regulation 37/09 to determine ANI/ANL for a year. In particular, subsection 9(1) of Ontario Regulation 37/09 will remove certain items included in OCI in determining ANI/ANL to the extent that they are not required to be included in computing income for income tax purposes. For example, adjustments for unrealized mark-to-market gains/losses on assets that are not required to be included in computing income for income tax purposes are not included in ANI/ANL for CMT purposes.
Clause 54(2)(b)
Administrative Policy
Inter-Leasing, Inc. v. Ontario (Revenue), 2014 ONCA 575
In connection with a plan to minimize Alberta corporate tax, the Precision group of companies reorganized to implement a structure which, among other features, resulted in interest-bearing debts being owed to the taxpayer by a Yukon company in the form of deeds of specialty debt, which were physically transferred to the British Virgin Islands. This was done to avoid Ontario corporate minimum tax which, under the Corporations Tax Act s. 47(2)(b)(ii) (essentially the same in this regard as s. 54(2)((b)(ii) of the Taxation Act (Ontario)), applied only to "property situated in Canada."
After referring (at para. 74) to the distinction in Commissioner of Stamps v. Hope, [1891] AC 476 (PC) between a mere "debt by contract" which was situate based on "the personal residence of the debtor," and a "debt by specialty," which was "within the jurisdiction within which the specialty was found at the time of death," Pardu JA rejected an argument of the Ministry that "the common law situs principle governing specialty debts should not apply in the context of modern corporate taxation" (para. 75) and that the "connecting factors" test in Williams instead should be applied (paras. 81-3), stating (at para. 86):
Clear rules to determine the situs of specialty debts promote certainty in their application. A case by case analysis of connecting factors in each case would have the reverse effect.
7 July 2016 External T.I. 2015-0595481E5 - Ontario Corporate Minimum Tax – Forgiven Debt
A corporation has a forgiven amount which it applies federally under the s. 80 rules but results in net income for financial statement purposes, causing a Corporate Minimum Tax liability under the Taxation Act, 2007 (“TA”). In confirming this result, CRA stated:
Subsection 54(2) of the TA clearly requires that generally accepted accounting principles (“GAAP”) be the basis for determining a corporation’s net income or net loss. Therefore, if GAAP determines that an economic gain arising on a forgiven amount is to be included in a corporation’s net income or net loss, then the forgiven amount will also be included in [adjusted net income or net loss] for purposes of subsection 54(2) of the TA. …
Further additions or deductions (“adjustment(s)”) to ANI/ANL are permitted if prescribed in section 9 of Regulation 37/09 of the TA. Currently, an amount recognized as an economic gain on a forgiven amount is not one of the prescribed adjustments.
Section 58
Subsection 58(2)
Administrative Policy
15 November 2016 Internal T.I. 2016-0656351I7 - Corporate Minimum Tax Eligible Loss Calculation
Does a corporation’s CMT payable for a taxation year takes into account adjusted net losses arising in a previous taxation year in which the corporation did not have a permanent establishment in Ontario for purposes of determining a subsequent taxation year’s eligible losses? The Directorate responded:
In a taxation year in which a corporation has ANI [adjusted net income], subsection 58(2) of the TA deems eligible losses to be applied to the fullest extent possible to reduce the corporation’s ANI in a taxation year to nil, regardless of whether or not the corporation was subject to CMT. Therefore, in a taxation year where a corporation does not have a permanent establishment in Ontario the corporation will be deemed to have deducted eligible losses to the extent the corporation otherwise would have had ANI in that taxation year. …
In conclusion, a corporation that becomes subject to CMT will be required to determine its eligible losses for a particular taxation year as if it had been subject to CMT in previous taxation years. There is no provision in the TA to adjust eligible losses to reflect changes in a corporation’s Ontario allocation factor.
Subsection 58(4.1)
Administrative Policy
26 October 2016 Internal T.I. 2016-0625041I7 - Eligible losses following vertical amalgamation
Does s. 58(4.1) deny the carryover of eligible losses for Corporate Minimum Tax (“CMT”) purposes on a vertical amalgamation occurring after March 21, 2007? The Directorate responded:
[Under s. 58(4.1)] where an amalgamation of two or more corporations, each referred to as a predecessor corporation in section 87 of the ITA, occurs after March 21, 2007, the carryover of a particular predecessor corporation’s eligible losses to the amalgamated corporation is not permitted for purposes of CMT to the extent that the predecessor corporation was controlled at any time before the amalgamation by any other predecessor corporation. …
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Other Legislation/Constitution - Ontario - Taxation Act 2007 - Section 58 - Subsection 58(5) | losses of sub disappear on its winding-up | 65 |
Subsection 58(5)
Administrative Policy
26 October 2016 Internal T.I. 2016-0625041I7 - Eligible losses following vertical amalgamation
Does s. 58(5) deny the carryover of eligible losses for Corporate Minimum Tax (“CMT”) purposes on a winding-up completed, after March 21, 2007? The Directorate responded:
Subsection 58(5) of the TA does not apply to a winding-up completed after March 21, 2007 and, as a consequence, eligible losses of a subsidiary are not permitted to be carried-over to its parent for purposes of the CMT.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Other Legislation/Constitution - Ontario - Taxation Act 2007 - Section 58 - Subsection 58(4.1) | amalgamation of sub eliminates its losses | 96 |
Section 60
Subsecion 60(1)
Administrative Policy
Ontario corporate minimum tax 25 April 2020
Canadian GAAP or IFRS
Corporate minimum tax is based on the adjusted net income of a corporation. The adjusted net income is a corporation's net income calculated in accordance with Canadian generally accepted accounting principles or the International Financial Reporting Standards, with various adjustments. The adjustments are reported in Part 2 of Schedule 510.
Deferral of reorg gains
Accounting gains reported in the year from corporation reorganizations that are deferred for income tax purposes are deductible when calculating adjusted net income.
Accounting gains reported in the year on the transfer of property under section 85, section 85.1, section 97, subsection 13(4), subsection 14(6), and/or section 44 of the federal Act are deductible when calculating adjusted net income. An election is required in order to claim this deduction. We will consider a corporation to have filed an election (and to not need to file another document) if it reports the deduction and has filed the election(s) required for corporate income tax purposes.
In addition, certain unrealized mark-to-market gains/losses and foreign currency gains/losses on assets that are not required to be included in computing income for income tax purposes are not included in adjusted net income. For additional information, see Ontario Regulation 37/09.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Other Legislation/Constitution - Ontario - Corporations Tax Act - Section 57.9 - Subsection 57.9(1) | 236 |
Forms
Schedule 510 Ontario Corporate Minimum Tax (2009 and later tax years)
Filing required if CMT credit carryforward
• A corporation not subject to CMT in the tax year is still required to file this schedule if it is deducting a CMT credit, has a CMT credit carryforward, or has a CMT loss carryforward or a current year CMT loss. …
Filed with T2
• File this schedule with the T2 Corporation Income Tax Return.
Reporting of deduction for reorganization gains
[Line 342: deduct:] Accounting gain on transfer of property to a corporation under section 85 or 85.1 of the federal Act ***
… Note …
***A joint election will be considered made under subsection 60(1) of the Ontario Act if there is an entry on line 342, and an election has been made for transfer of property to a corporation under subsection 85(1) of the federal Act.
Section 92
Subsection 92(5.6)
Administrative Policy
3 February 2015 External T.I. 2014-0531601E5 - OPSTC - "tangible property that is leased"
In finding that a "lease cost" did not include amounts payable under a licence of property (i.e., exclusive possession of the property was not given), CRA cited Will-Kare for the proposition that "the concepts of a sale or a lease have settled legal definitions."
Section 125
Subsection 125(3)
See Also
Weinberg Family Trust v. The Queen, 2016 TCC 37
The taxpayer, which had taken the position that it was a trust resident in Alberta, was assessed by CRA for its 2007 to 2010 taxation years on the basis that it was resident in Ontario as well as being assessed gross negligence penalties. It filed a Notice of Appeal in the Tax Court, as well as filing pleadings in the Ontario Superior Court of Justice, respecting both issues (residence and penalties). In finding that the Court did not have jurisdiction over the subject matter of the appeal, V. Miller, J. stated (at para. 13-14):
[T]his Court does not have jurisdiction to hear appeals where the only issue is residency in the Province of Ontario. That jurisdiction is with the Ontario Courts: See Income Tax Act, R.S.O. 1990. c. I.2, s. 23; Taxation Act, 2007, S.O. 2007, c. 11, ss. 125; and also see Gardner [[2001 FCA 401]…at paragraph 17.
…[I]t is also clear that the Tax Court of Canada does not have jurisdiction to decide if a provincial penalty is properly imposed: Andrew Paving & Engineering Ltd v Minister of National Revenue, [1984] C.T.C. 2164 (TCC) at paragraph 8 and Raboud v Canada, 2009 TCC 99 at paragraph 12.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 163 - Subsection 163(2) | no TCC jurisdiction to reverse a provincial gross negligence penalty | 108 |
Section 158
Cases
Aubrey Dan Family Trust v. Ontario (Finance), 2017 ONCA 875
In 2011, and shortly before the third anniversary of the original assessment in 2008 of the taxpayer’s 2007 federal and Alberta return, the trustees of the taxpayer provided a waiver on form T2029 to CRA in order for CRA to grant it an extension (beyond that third anniversary date) for the taxpayer to make representations that it was resident in Alberta rather than Ontario. After the third anniversary, the federal Minister issued a notice reversing the Alberta tax in the 2008 assessment and assessing the taxpayer instead for Ontario tax.
In a summary judgment motion, the taxpayer argued unsuccessfully that, although form T2029 is a prescribed form under the federal Income Tax Act, it did not operate to waive the limitation period for reassessing income tax under the Ontario Act because it had never been “prescribed” for the purposes of the Ontario Act by means of an order of the Provincial Minister: s. 1(1) of the Ontario Act. The taxpayer also unsuccessfully argued that advice from government agencies that no order or other document exists that prescribed waiver form T2029 for the purposes of the Ontario Act “called in question” whether it had been prescribed for purposes of the Ontario Act as per s. 48(15) of the Ontario Act which, similarly to s. 158 of the Taxation Act (Ontario), provided:
Every form purporting to be a form prescribed or authorized by the Provincial Minister shall be deemed to be a form prescribed by order of the Provincial Minister [effectively defined in s. 1(1) to be the federal Minister] under this Act unless called in question by the Provincial Minister or by some person acting for the Provincial Minister… .
The Court dismissed the appeal, stating (at paras 10 and 16-17):
[W]aiver form T2029 “bears the insignia of the … [Canada Revenue Agency (“CRA”)] and the Government of Canada and … is regularly used by the CRA.” In the motion judge’s words, “[i]n this way, it implies or purports to be a prescribed form.” Moreover, “[e]xplicit wording on the form that it purports to be a form prescribed under the Ontario Act is not required for subsection 48(15) to apply.”
Finally, we agree … that advice …from government agencies under freedom of information type legislation and a statement in the respondent’s motion factum did not amount to calling into question form T2029 as a prescribed form. The statements upon which the appellant relies were to the effect that no order or other document exists prescribing waiver form T2029 for the purposes of waiving the normal reassessment period under the Ontario Act.
…[A]s stated by the motion judge, “[w]aiver form T2029 is a form utilized for federal purposes and purports to be the form prescribed or authorized by the Minister of National Revenue”… .
Aubrey Dan Family Trust v. Minister of Finance, 2016 ONSC 3801, aff'd 2017 ONCA 875
In 2011, and shortly before the third anniversary of the original assessment in 2008 of the taxpayer’s 2007 federal and Alberta return, the trustees of the taxpayer (“ADFT”) provided a waiver on form T2029 to CRA in order for CRA to grant it an extension (beyond that third anniversary date) for ADFT to make representations that it was resident in Alberta rather than Ontario. Early in 2012, the federal Minister issued a notice (styled as a Notice of “Reassessment”) reversing the Alberta tax in the 2008 assessment and assessing ADFT instead for Ontario tax.
S. 48(15) of the Income Tax Act (Ontario) (the “Ontario Act”) provided:
Every form purporting to be a form prescribed or authorized by the Provincial Minister shall be deemed to be a form prescribed by order of the Provincial Minister [effectively defined in s. 1(1) to be the federal Minister] under this Act… .
ADFT argued that this provision required “that the form itself must purport to be prescribed” for the provision to be operative (para. 31). Before rejecting this submission, Lederman first found against a Crown argument that, as the 2008 assessment had not dealt with Ontario taxes, it was the 2012 “reassessment” which in fact was the original assessment of the taxpayer’s Ontario tax (so that the normal reassessment period did not start running until then).
In turning to ADFT’s argument, Lederman J found that there was a valid waiver pursuant to the Ontario Act for purposes of waiving the normal reassessment period, stating (at paras. 32, 34):
The word “purporting” means “signify, imply, profess to be … appear ostensibly to be”… . On its face, the T2029 Waiver Form bears the insignia of the CRA… and is regularly used by the CRA. In this way, it implies or purports to be a prescribed form.
… The prescription imposed by the Minister is sufficiently evidenced by the …indicia on the form. Explicit wording on the form that it purports to be a form prescribed under the Ontario Act is not required for subsection 48(15) to apply.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 152 - Subsection 152(4) | original assessment not dealing with Ontario tax starts the normal Ontario reassessment period | 300 |
| Tax Topics - Income Tax Act - Section 244 - Subsection 244(16) | form bearing CRA insignia purported to be prescribed form | 78 |
Regulation 37/09
Subsection 8(1)
Administrative Policy
10 November 2014 External T.I. 2013-0513271E5 - Ontario CMT mark-to-market accounting adjustments
Is an accounting write-down of a owing by a corporation's foreign subsidiary not required to be added back to adjusted net income ("ANI") for Ontario Corporate Minimum Tax (CMT) purposes. CRA responded:
ANI for CMT purposes is to be computed to remove mark-to-market changes in the fair value of property held by the corporation that are reflected in a corporation's net income/net loss for the taxation year determined in accordance with GAAP. Therefore, where an unrealized loss on a debt is reflected in net income/net loss under GAAP as a mark-to-market change, it is included in ANI for CMT purposes as an accounting loss difference. In effect, the unrealized loss is added back to the financial statement net income/net loss in the determination of ANI.