Principal Issues: [TaxInterpretations translation] Is an amount paid in respect of the compensation tax on financial institutions (Quebec) under paragraph e) of Article 1159.3 of the Taxation Act deductible in computing income?
Position: Yes
Reasons: It is an expense to earn business income.
August 3, 2004
Montérégie-Rive-sud Tax Services Office Headquarters
Income Tax Rulings Directorate Section 447-1
Michel Lambert
Attention: Ms Martine Clermont (613) 957-89532004-007878
Compensation tax on financial institutions (Quebec)
This is further to your fax of May 28, 2004 asking whether the amount a taxpayer pays to the Government of Quebec as a compensatory tax on financial institutions is deductible from income. More specifically, the amount that the taxpayer must pay is determined under paragraph (e) of section 1159.2 of the Taxation Act (Quebec).
Section 1159.2 sets out the amount of tax payable. For a taxpayer referred to in paragraph (e), the amount of tax is 1% of the wages paid in the year. In certain circumstances, the amount may be reduced as a function of the value of the supplies of financial services in relation to the value of all supplies.
In our view, the tax payable under subsection (e) of section 1159.2 of the Taxation Act is a payroll tax that may be deducted in computing the taxpayer's income.
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.
Manager
Financing and Plans Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch