Principal Issues: Are appraisal fees of capital property incurred for financial reporting purposes deductible as current expenditures?
Position: Yes.
Reasons: Question of fact. Expenditures incurred to prepare financial statements are generally on account of income.
FEDERAL TAX ROUNDTABLE 7 OCTOBER 2011
APFF CONFERENCE 2011
Question 16
Appraisal Fees for the Filing of Financial Statements under ASPE or IFRS
Since the convergence of Canadian standards with international standards was implemented in Canada, Canadian generally accepted accounting principles (GAAP) can no longer be used by Canadian corporations for fiscal years beginning on or after January 1, 2011. Depending on their particular situation, they will either have to use Canadian accounting standards for private enterprises (ASPE) or international financial reporting standards (IFRS) to prepare their financial statements.
One of the major differences in the new accounting standards is the option to revalue fixed assets. Certain corporations making that choice will incur fees for an independent chartered appraiser to conduct such revaluations.
Question for the CRA
Are such fees incurred for the revaluation of capital property to prepare annual financial statements deductible as current expenses?
CRA Response
We are of the view that, in general, the reasonable expenses incurred by a taxpayer in valuing capital property for the purpose of its acquisition or disposition are an addition to the adjusted cost base of that property by virtue of 53(1)(n).
Furthermore, we are also of the view that reasonable expenses incurred in valuing capital property for the purpose of preparing the annual financial statements in accordance with the applicable new accounting standards would generally be deductible as a current expense.
Jelena Pajkovic
(613) 941-0782
2011-041197