1993 EDMONTON DISTRICT OFFICE INFORMATION SESSION
RE: Large Corporation Tax
QUESTION #4
If the intent of paragraph 181.2(3)(c) of the Act is to include deferred credits in the capital of a corporation for the Part I.3 purposes, should the wordings be changed in part to include liabilities, secured or unsecured, including any deferred credit and excluding current account payable? Also, should advance be removed since it has a very broad meaning?
RESPONSE #4
Amending the Act is the responsibility of the Department of Finance. Nevertheless, it has been intended to include any deferred credit and advance in the capital of a corporation for the purposes of Part I.3 of the Act. In accordance with the Terminology For Accountants (3 ed) by the Canadian Institute of Chartered Accountants, the expression "deferred credit" which is also known as "deferred income" or "deferred revenue" is defined as:
An amount received or recorded as receivable but not yet earned and meanwhile carried forward to be taken into income over a period of years.
The Department considers that deferred credits come within the ambit of reserve as the term is defined in subsection 181(1) of the Act, and these amounts would, therefore, be included in the calculation of the capital of a corporation pursuant to paragraph 181.2(3)(b) of the Act to the extent that they have not been deducted in computing the income of the corporation for the year under Part I of the Act. However, an application of paragraph 181.2(3)(b) of the Act to exclude an amount of a tax deductible reserve does not preclude the amount from being included in taxable capital under paragraph 181.2(3)(c) or (f) of the Act provided that the requirements of such paragraph have been met. The term "advance" often means simply "pay" or "pay money before it is due" and it is meant to have a broad scope. For example, a "take-or- pay" amount may be considered a reserve for the purpose of paragraph 181.2(3)(b) of the Act, is also an advance for the purpose of paragraph 181.2(3)(c) of the Act. This view is buttressed by the decision of the Ontario Supreme Court in the case of TransCanada Pipelines Limited v. The Minister of Revenue (Ontario), (1990) O.J. No. 64, affirmed by the Ontario Court of Appeal (the case was heard in December 1992 and will be reported soon). The term "advance" was regarded by the Courts as being broad enough to include a take-or-pay amount given to a corporate producer for the purpose of calculating Ontario capital tax under the Corporation Tax Act, (Ontario).