Principal Issues: [TaxInterpretations translation] Where minimum tax applies in a taxation year, is the deductible amount of investment tax credit in respect of property acquired in the year limited to the amount by which the tax otherwise payable under Part I of the Act for the year exceeds the minimum tax applicable to the individual for that year?
If so, can the unused investment tax credit balance be carried back to previous years?
Position: Yes, if the investment tax credit amount is higher than this excess.
When calculating the amount of investment tax credit deductible for previous taxation years, the taxpayer will have to take into account the balance that was not deductible in the particular taxation year.
Reasons: Paragraph 127(5)(b) of the Act specifically provides for this limitation.
For purposes of the carryback to years prior to the particular taxation year, subparagraph 127(5)(a)(ii) takes into account the balance that was not deductible in the particular taxation year.
October 8, 2004
Chicoutimi Tax Services Office Headquarters Ms. Jocelyne Gagné Sylvie Labarre, CA Client Services (613) 957-8953
2004-009337
Investment tax credit and minimum tax
This is further to your fax of September 1, 2004 in which you asked for our opinion on the above subject.
You have submitted the situation of a taxpayer who acquired property for $XXXXXXXXXX in 2003. This acquisition entitled him to an investment tax credit of 10%, i.e., $ XXXXXXXXXX. In 2003, the federal tax reported on line 406 of Schedule 1 of his income tax return was $XXXXXXXXXX. However, the taxpayer was subject to minimum tax. The minimum tax was $XXXXXXXXXX for 2003.
You wish to know whether the investment tax credit that could be deducted in 2003 was limited to $XXXXXXXXXX and whether the taxpayer can carry back at least $XXXXXXXXXX as claimed.
Our Comments
Subsection 127(5) of the Income Tax Act (the "Act") provides that the amount of investment tax credit that a taxpayer may deduct from tax otherwise payable for a taxation year shall not exceed the lesser of the amounts determined under paragraphs 127(5)(a) and (b).
Based on the information provided in your request, the amount calculated under paragraph 127(5)(a) in this situation is the investment tax credit amount of $XXXXXXXXXX.
Where minimum tax (the provisions of Division E.1 of Part I of the Act) applies for the year, the amount calculated in paragraph 127(5)(b) is equal to the amount by which his tax otherwise payable by virtue of Part I of the Act for the year ($XXXXXXXXXX) exceeds the minimum tax applicable to him for the year calculated under section 127.51 ($XXXXXXXXXX). In this situation, the amount calculated under paragraph 127(5)(b) is therefore $XXXXXXXXXX.
The amount calculated under paragraph 127(5)(b) ($XXXXXXXXXX) is less than the amount calculated under paragraph 127(5)(a) ($XXXXXXXXXX). Consequently, it is this lesser amount that is deductible as an investment tax credit for 2003.
When calculating the amount of investment tax credit deductible from the tax otherwise payable for the taxation years 2000, 2001 and 2002, the taxpayer must take into account the investment tax credit for 2003 that was not deducted in the 2003 year or in a year prior to the carrying-back year. The amount deductible in a carrying-back year also depends on the tax otherwise payable for that year and the application of the minimum tax to that year.
In the situation you presented to us, we are of the view that the taxpayer will be able to carry back the amount of the investment tax credit that was not deductible in 2003 ($XXXXXXXXXX) to any of the three preceding years or the 10 following years up to the limits provided for in subsection 127(5) for that carrying-back year. However, any investment tax credit refund amount claimed in 2003 ($XXXXXXXXXX as per the form attached to your request) reduces the unused investment tax credit amount that can be carried forward to any of the subsequent 10 years.
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 you find these comments of assistance. Should you require any additional information regarding the content of this document, please do not hesitate to contact us.
Ghislaine Landry, CGA
for the Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch