Principal Issues: A public Canadian corporation is listed on the TSX and Nasdaq. US Securities Regulators require the filing of financial statements in US GAAP for securities purposes. The Canadian Securities Administrators will accept US GAAP based financial statements for Canadian securities reporting purposes. Will the CRA accept the US GAAP-based, US dollar financial statements for filing returns?
Position: In the circumstances outlined, yes. However, the taxpayer must still ensure that the various amounts reported in the US GAAP-based statements are acceptable for the various provisions of the Act.
Reasons: In the situation described the corporation is not required to produce IFRS-based financial statements for tax purposes.
XXXXXXXXXX 2011-040364 S Fron April 28, 2011
Mr. XXXXXXXXXX :
Re: US GAAP-Based Financial Statements for T2 Returns
We are responding to your email concerning whether your client's U.S. GAAP-based financial statements would be acceptable for filing the corporation's T2 tax return. Your client is a Canadian corporation for purposes of the Income Tax Act (the "Act") and is resident in Canada. The shares of the corporation are traded on the TSX in Canada, and on the NASDAQ in the U.S. The corporation is required to prepare U.S. GAAP financial statements and to file these with the securities regulators in the United States. The corporation is permitted to file U.S. GAAP financial statements for Canadian securities purposes. The corporation has made a functional currency election under section 261 of the Act.
In the circumstances you outlined in your email, we confirm that the corporation's U.S. GAAP-based financial statements would be acceptable for purposes of filing its tax return. However, the corporation must still ensure that the amounts reported in the financial statements and books and records are appropriate for the purpose of determining its taxable income. For example, the corporation must still consider whether the U.S. GAAP-based results provide an accurate picture of income for purposes of section 9 of the Act, and must ensure that any adjustments to income required under sections 12, 18 and 20 (among others) are correct.
The computation of income is a question of law, and cannot be resolved solely by reference to accounting standards. We would be pleased to respond to a more specific question, dealing with the tax treatment of a particular type of transaction or balance, if you were to identify one where the tax results are materially different depending on the accounting basis chosen for the financial statements.
We trust the above comments are of assistance.
Steve Fron
Acting Manager
International & Trusts Division
Income Tax Rulings Directorate