Principal Issues: [TaxInterpretations translation] Does the expression "tax otherwise payable under this Part" contained in subsection 127(1) of the Income Tax Act (the "Act") include the corporate surtax under section 123.2 of the Act?
Position: Yes.
Reasons: Subsection 117(1) of the Act defines the expression "tax otherwise payable under this Part". The rules for calculating the tax applicable to corporations are found in subdivision b of Division E of Part I of the Income Tax Act and those applicable to all taxpayers are found in subdivision c of Division E of Part I of the Income Tax Act.
May 5, 2009
Estrie-Mauricie Tax Services Office Business and Partnership Division Attention: Vestine Ngoga Lucie Allaire, Advocate, CGA
2009-031121
Meaning of "tax otherwise payable under Part I".
This is further to your email of February 23, 2009 asking whether the corporate surtax under section 123.2 of the Income Tax Act (the "Act") forms part of the tax otherwise payable under Part I in respect of the federal logging tax credit under subsection 127(1) of the Act.
Unless otherwise indicated, all legislative references herein are to the provisions of the Act.
Our Comments
Section 123.2, now repealed, established a 4% surtax on the tax payable by a corporation under Part I of the Act. Under paragraph 123.2(1)(a), now repealed, the surtax was calculated by reference to the federal corporate tax payable after the application of the 10% provincial abatement but before the application of certain tax credits. Thus, in calculating the surtax, it was necessary for the federal tax credit for forestry operations to be taken into consideration. It should be noted, however, that the surtax imposed on corporations by section 123.2 was eliminated for taxation years ending after December 31, 2007.
Subsection 127(1) allows a taxpayer to claim the federal logging tax credit. This subsection begins as follows:
There may be deducted from the tax otherwise payable by a taxpayer under this Part for a taxation year an amount equal to the lesser of
[Boldface added]
For the purposes of sections 117 to 127.4, the expression "tax otherwise payable under this Part" is defined in subsection 117(1). That subsection provides, inter alia, that for the purposes of Division E, tax otherwise payable under Part I shall be computed without reference to Division E.1.
The rules for calculating the tax applicable to corporations (including the corporate surtax) and those applicable to all taxpayers (including the federal tax credit for forestry operations) are found respectively in subdivisions b and c of Division E of Part I of the Act. In this regard, the T2 Corporation Income Tax Guide, which covers the relevant provisions of the Act applicable to corporations, states that the Part I tax payable for the year is the basic Part I tax plus the amount of surtax, the amount of recapture of the investment tax credit, and the refundable tax on the Canadian-controlled private corporation’s investment income, minus any allowable deductions and credits, including the federal tax credit for forestry operations.
In light of the foregoing, it is our view that the expression "tax otherwise payable under this Part" for the purposes of subsection 127(1) includes the corporate surtax under section 123.2.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
We hope that these comments are of assistance.
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.