Gross Revenue

CRA considered that an upward adjustment under s. 247(2) to a Canadian resident’s sales proceeds – but not a downward adjustment to its purchase price for goods – increased its gross revenue for provincial income allocation purposes. See summary under Reg. 402(3).

Should amounts received or receivable as volume discounts should be included in a corporation's "gross revenue" for purposes of Reg. 402(3)? After noting "that taxpayers tend to treat gross revenue to mean revenue for financial statement purposes" and "that, for financial statement purposes, rebates and volume discounts are deducted from the cost of purchase," stating that the "truer picture" doctrine in West Kootenay Power, 92 DTC 6023 and Canderel, 98 DTC 6100 was "not determinative of the issue because gross revenue is specifically defined in the Act, whereas profit and loss are not," and noting that "using financial statement revenue would potentially render paragraph (b) of the definition of gross revenue meaningless," CRA stated that "gross revenue for the purposes of Part IV of the Regulations includes all amounts received or receivable by a taxpayer, other than on account of capital, but does not include amounts received in respect of expenditures of the taxpayer." Respecting the latter exclusion, CRA referred specifically to:

• "amounts received or receivable on account of a taxpayer's expenditures, such as volume rebates, received by the taxpayer because these are adjustments to amounts of expenditures as opposed to receipts in respect of income-earning activities;
• financial assistance received by the taxpayer from a government in respect of expenditures incurred or to be incurred by the taxpayer;"

This represents a "change in position on the meaning of gross revenue for purposes of provincial income allocation from that taken in our letter F2010-0382161I7."

S. 110.6(1.3)(b)(i)(A) referenced a basis for a property being considered to be being used in the course of carrying on a farming business in Canada based inter alia on a two-year test of the “gross revenue from farming” exceeding the income of the operator from all other sources during that period. CRA stated:

[A]n individual referred to in paragraph 110.6(1.3)(a) must not include in computing the individual’s gross revenue - under clause 110.6(1.3)(b)(i)(A) - the capital gains the individual realized. Indeed, the term "gross revenue" is defined in subsection 248(1) and excludes amounts received as capital.

Gross revenue would include foreign exchange gains on income account but would not be reduced by foreign exchange losses; and would include interest income on it to a company loans receivable but would not be reduced by interest expense incurred in inter company loans payable. Investment tax credits would not be added to gross revenue.

The former definition in s. 110.6(1) of "qualified farm property" required a comparison of the taxpayer’s gross revenue from his farming business during a two-year period with his income from all other sources during that period. Was a refund received from the Quebec government of municipal and school taxes included in the gross revenue of the farming business, or was it applied to reduce the municipal and school tax expense? CCRA responded:

[W]here a rebate is received from a government for municipal and school taxes by a taxpayer in the course of his farming business, the application of the commercial principles recognized for the purpose of computing profit (or loss) in section 9 of the Act ordinarily requires that the amount of the tax expenditure be reduced by the amount of the refund to which it relates. Alternatively, if the refund received from a government is not related to an expense (or property), those principles require that the refund be included in computing the taxpayer's income from property or a business. …

[Such] refund … is an amount covered by paragraph 12(1)(x), but that paragraph will not apply if the refund amount has already been included in the taxpayer's income or has already reduced the expense in accordance with accepted commercial principles.

Recapture of depreciation does not constitute "gross revenue" for purposes of Regulation 402(3).

Where an oil and gas company does not have inventory readily available at a specific location and, in order to avoid transportation costs, borrows that product from another company as part of an exchange agreement, the swap under the Law of Bailments will be characterized as a sale and, therefore, will also give rise to a sale for purposes of ss.402(3) and (4) of the Regulations and the definition of "gross revenue".