Words and Phrases - "advance"
22 October 2001 External T.I. 2001-0070715 F - ALLOCATIONS AUTOMOBILES
An employer was required to withhold pursuant to s. 153(1) on fixed automobile allowance paid monthly even though, at the end of the year, it included in the T4 for the affected employee, the amount by which this total allowance exceeded the amount that the employee should have received based on the kilometres driven for business purposes. The sums paid could not constitute advances, as the employees were not obligated to repay the excess over the business kilometerage to the employer.
The allowance was not paid solely on the basis of the number of kilometres travelled, so that the allowance was deemed by s. 6(1)(b)(x) to be unreasonable, and was required to be included as employment income. However, the employees may apply to CCRA to have the payroll deductions reduced or eliminated based inter alia on the estimated automobile expenses for the year.
15 April 2003 Internal T.I. 2002-0176687 F - IMPOT DES GRANDES SOCIETES AVANCES
Customers of the corporation paid for services in advance, which the corporation showed as a liability on its balance sheet but deducted as a reserve in computing its income pursuant to s. 20(6). After finding that such amounts were not a reserve described in s. 181.2(3)(c), and in finding that they were includible in taxable capital pursuant to s. 181.2(3)(b) as “advances,” the Directorate stated:
The word "advance" … denotes, inter alia, the lending of money or the payment of an amount against the price of a contract for services or goods, paid before the contract is performed, the services rendered or the goods delivered.
… [I]n this context … the consideration to be received by customers is … the XXXXXXXXXX service offered by the corporation.
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 181.2 - Subsection 181.2(3) - Paragraph 181.2(3)(c) | prepaid revenues deducted under s. 20(6) were not a reserve | 185 |
11 May 2005 Roundtable, 2005-0118731C6 F - Contrat avec une société d'affacturage
A factoring company advances sums to Corporation A at a discount to the face value of the discounted receivables, and then applies the amounts collected to reduce the advance amounts. For accounting purposes, the accounts receivable remain on Corporation A's balance sheet and the amount received is recorded in current liabilities as an item due to the factoring company. Should the amount owing to the factoring company be included in the capital computation under s. 181.2(3)? After noting the distinction between “loans and advances” and “all other indebtedness” in ss. 181.2(3)(c) and (f), CRA stated:
"[I]indebtedness " has a broader meaning than the term "loans" since it includes not only the lender-borrower relationship but also a seller-buyer transaction. Indebtedness means an obligation to pay a sum of money. A loan is usually understood as the delivery to one party and receipt by another party of a sum of money which it has been agreed, expressly or impliedly, will be repaid with or without interest. The term "advance" has two possible meanings, namely that of a loan in the proper sense of the word and that of a deposit to be applied to the price of a contract before it is performed.
21 September 2007 External T.I. 2007-0229191E5 F - Agent de voyages & impôt de la partie I.3
Quebec and Ontario travel agents were required by provincial legislation to hold funds collected from clients for services to be rendered to them in a trust account, and also, in their year end balance sheets, reported the current balances in the trust accounts as assets and also as deferred-revenue liabilities. CRA stated:
The term "advance" is not defined in the Act. It is our view that this term includes an advance payment. Funds received from clients and placed in trust under the Quebec and Ontario legislation referred to above are, in our view, prepaid and advances for the purposes of the definition of capital in subsection 181.2(3).
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 181 - Subsection 181(3) - Paragraph 181(3)(b) - Subparagraph 181(3)(b)(i) | customer advances received by travel agents and reported as deferred revenue in their balance sheets were required to be included in taxable capital even though amounts held in trust | 109 |
26 April 2016 Internal T.I. 2015-0623571I7 - one-time salary transition payment
An employer is considering changing its payroll system to a payment-in-arrears system, so that employees will be paid for work that was done two weeks previously. The employer will pay existing employees a one-time transition payment (TP), at the date of conversion, instead of having a gap in pay. However, upon termination of employment, the employee generally would be required to make a payment to the employer (the employer may choose to take the money from a payment being made to the employee).
In concluding that the “TP would likely be considered a salary advance which should be included in the employees’ income in the year it is received,” the Directorate stated:
[W]here an employer makes a payment to an employee that is an advance on account of the employee’s future earnings, the amount received is generally not considered to be a loan to which subsection 80.4(1)… applies. …
Normally, an employee is not required to repay a salary advance as long as he or she continues to perform the services (i.e., remains employed). The fact that an employer is entitled to recover some part of the advance if an employee ceases employment before he or she has provided services in respect of which the advance was made, does not change the nature of the payment. Such advances are generally included in an employee’s income under subsection 5(1)… .
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - Income Tax Act - Section 8 - Subsection 8(1) - Paragraph 8(1)(n) | deduction for repayment of transitional advance | 163 |
| Tax Topics - Income Tax Act - Section 80.4 - Subsection 80.4(1) | employee advance not a “loan” | 123 |
13 January 2012 Internal T.I. 2011-0414111I7 F - Deemed Interest Incomes - Exception 17(8)
Where a taxable Canadian corporation makes a non-interest bearing loan to a controlled foreign affiliate (CFA 1) which, in turn, uses the proceeds to acquire the debt (the "Debt") of another CFA (CFA 2) from a non-arm's length Canadian corporation. CRA found that s. 17(8)(a)(ii) was not available as the Debt would not be considered to be a loan to the second CFA. In this regard, CRA quoted a judicial statement that "the courts have concluded that the concept of loan or advance is related to the existence of a payment of money between two parties and to the presence of that relationship of lender / borrower," and then stated:
[T]he contractual relationship between CFA 1 and CFA 2 with respect to the Debt establishes a creditor/debtor relationship and not a lender/borrower relationship. In fact, there was no agreement, either implied or explicit, nor a payment or acceptance of money between CFA 1 and CFA 2, which could enable us to conclude that there is a lender/borrower relationship. Although CFA 1 became the creditor of CFA 2 while acquiring the Debt, it never made a loan per se.
TransCanada Pipelines Ltd. v. Minister of Revenue (1992), 62 O.A.C. 105
The respondent (a pipeline company) agreed to purchase certain minimum quantities of gas each year. If it was unable to take delivery of the agreed minimum it was nevertheless required to pay the producer the full minimum purchase price and it correspondingly became entitled to credit for such payments against future purchases of gas.
Because the respondent expected in making the required minimum payments that it would, in the fullness of time, call for a delivery of an equivalent amount of gas for which it had so paid, such minimum fell within dictionary definitions of 'advance' as a 'payment [made] beforehand or in anticipation' and a 'payment made before ... the completion of an obligation for which it is to be paid' (at p. 107). Because the object of the contracts was to secure gas for the respondent's business, it also followed that the advances were "investments", i.e., expenditures "for future benefits or advantages".
Oerlikon Aérospatiale Inc. v. R., 99 DTC 5318, [1999] 4 CTC 358 (FCA)
The taxpayer financed its work on the manufacture of defence products under two contracts by receiving advances from the prime contractor or an affiliated company. Noël J.A. found that the advances did not qualify as reserves which were included in capital under s. 181.2(3)(b) because the taxpayer had claimed a reserve for s. 20(1)(m) purposes. Instead, the amounts were included under s. 181.2(3)(c) as advances. Noël J.A. stated (at p. 5325):
"The effect of an advance, be it in the sense of a payment on account or a loan, is to make the amount of money it represents available to the person or corporation which receives it. In the instant case, the advances were an integral part of the financial resources available to the appellant at the end of its 1989 fiscal year ... ."
Federated Cooperatives Ltd. v. The Queen, 2001 FCA 217, 2001 DTC 5414
Bankers acceptances held by the taxpayer were not "advances" to the issuer because the issuer had no obligation to repay the same sum of money to the taxpayer or to provide any goods or services, and its only payment obligation to the taxpayer was a contingent obligation to pay the face amount if the accepting bank failed to do so. Furthermore, the bankers acceptances were not bonds, debentures, notes, mortgages or similar obligation because the bank alone was primarily liable to pay the holder. Sharlow JA stated:
[A] banker's acceptance is not an obligation of the issuer that is similar to a bond, debenture, note or mortgage. Each of those is a document evidencing indebtedness of the maker in the form of a promise to pay, an obligation for which the issuer is primarily liable. The issuer of a bill of exchange that has been accepted by a bank is only contingently liable to pay the holder.
The result that no investment allowance was available conformed with a possible policy objective of excluding short-term bank debts from eligibility.