After the normal reassessment period for its 2005 taxation year had expired, the company submitted a request for an addition to its 2005 taxable income pursuant to s. 110.5, in order to utilize available FTCs. This proposed increase to its 2005 taxable income would result in no additional tax liability once the FTCs were utilized. Under the definition of "non-capital loss" in subsection 111(8), the proposed addition to its 2005 taxable income, would be a non-capital loss, which it requested be carried forward to its 2006 return.
Does s. 152(4)(b)(iv) extend the normal reassessment period to six years on a s. 110.5 addition to taxable income? CRA stated:
[S.] 152(4)(b)(iv) does not apply to extend the normal reassessment period on a section 110.5 addition to taxable income. A section 110.5 addition of income does not result in a payment or reimbursement of any income or profits tax to or by the government of a country other than Canada or a government of a state, province or other political subdivision of any such country.
Respecting whether such s. 110.5 increase nonetheless could be made on the basis that it was a permissive adjustment contemplated by IC 84-1, CRA stated:
An addition to income under section 110.5 is not permissive in that sense, because the taxpayer can choose only to use that section or not to use it, but cannot vary the amount of inclusion, which amount is that which absorbs the FTCs, no more or less. Furthermore, this circular deals with deductions in computing income, while section 110.5 involves an income increase with an offsetting change to a federal tax credit, so it is not neutral from the standpoint of provincial tax.