Principal Issues: 1. Whether paragraph 10 of IC 84-1 applies in the situation described? 2. Whether the taxpayer must pay interest pursuant to subsection 161(1)?
Position: 1. Yes. 2. No.
Reasons: 1. Situation described in paragraph 10 of IC 84-1. 2. No tax payable before and after the revision.
May 13, 2005
Montreal TSO Income Tax Rulings Directorate
Tax Technical Interpretation Services Corporate Reorganizations and
Resource Industries Division
Attention: Paulette Lachance
Robert Gagnon
(613) 957-2108
2005-012704Review of a capital cost allowance claim made by a corporation
This is in response to your email of April 25, 2005 in which you asked about the following situation.
Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act (the "Act").
Facts
1. Opco is a "taxable Canadian corporation" as defined in subsection 89(1).
2. Opco had a "non-capital loss" ("NCL"), as defined in subsection 111(8), of $XXXXXXXXXX for its 1997 taxation year.
3. Opco's income under section 3 for its 2000 taxation year was $XXXXXXXXXX. When filing its T2 income tax return for its 2000 taxation year, Opco deducted its 1997 NCL of $XXXXXXXXXX in computing its taxable income pursuant to paragraph 111(1)(a), so that its taxable income for its 2000 taxation year was nil.
4. The Canada Revenue Agency ("CRA") issued a written notice to Opco pursuant to subsection 152(4) that no tax was payable for its 2000 taxation year.
5. Opco wished to make changes to its T2 income tax return for its 2000 taxation year, so as to claim additional capital cost allowance of $XXXXXXXXXX pursuant to paragraph 20(1)(a) and reverse the 1997 NCL carryforward to the year 2000. Opco would then have a NCL of $XXXXXXXXXX for its 2000 taxation year. Opco's request was made more than 90 days after the date of mailing of the written notice that no tax was payable for its 2000 taxation year.
Your Questions
1. Is it possible for Opco to make changes to its T2 income tax return for its 2000 taxation year more than 90 days after the date of mailing of the written notice that no tax was payable for its 2000 taxation year?
2. Would Opco be subject to interest pursuant to section 161 if the CRA accepts Opco's requested changes to its income tax return for its 2000 taxation year?
Our Comments
The CRA's position on revisions requested for non-taxable years in this situation is set out in paragraph 10 of IC 84-1:
Where a taxpayer requests a revision of capital cost allowance claimed in a taxation year for which a notification that no tax is payable had been issued (e.g. because of a non-capital loss in that year, the application of a non-capital loss of another year, or the fact that income was exempt from tax in that year), such request will be allowed provided there is no change in the tax payable for the year or any other year filed, including one that is statute barred, for which the time has expired for filing a notice of objection. …
In the situation described above, it would therefore be possible for Opco to make the changes to its T2 income tax return for its 2000 taxation year more than 90 days after the date the CRA mailed the written notice that no tax was payable for its 2000 taxation year. However, the additional depreciation claimed for the 2000 year must not result in a change to tax payable for the 2001 and subsequent taxation years for which the time limit for filing a notice of objection has expired.
The new NCL for the 2000 taxation year cannot be applied to a subsequent taxation year for which there is tax payable and for which the time limit for filing a notice of objection has expired.
There would be no interest payable pursuant to subsection 161(1) as a result of the requested change in the situation described above under the practice followed by the CRA, since there is no tax payable at issue in Opco's original return for its 2000 taxation year or in its revised return.
We hope that our comments are of assistance.
Best regards,
Maurice Bisson, CGA
for the Director
Corporate Reorganizations and Resource Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch