Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: May a corporation carryback unused Part I credits accrued in a year that it was not a financial institution for the purposes of Part VI to offset Part VI tax paid in a year that it was a financial institution for Part VI purposes.
Position: Yes.
Reasons: The definition "unused Part I tax credit" in subsection 190.1(5) of the Act defines the unused Part I tax credits of "a corporation". There appears to be nothing which would limit the accrual of unused Part I credits to corporations that are financial institutions for Part VI purposes at the time.
October 17, 2000
TORONTO TSO HEADQUARTERS R. Maley Attention: Doug Mitchell (613-957-9226)
2000-004722
Carryback of Unused Part I tax credits
This is in reply to your e-mail of August 2, 2000 asking for our comments on the following fact situation. A corporation was a financial institution for the purposes of Part VI in 1994. The corporation paid Part VI tax in 1994. In 1995, the corporation was not a financial institution for Part VI purposes, although it continued to be a financial institution for the purposes of Part I.3. In 1995, the corporation paid Part I tax. Is the corporation entitled to carry back the Part I tax it paid in 1995 to offset the Part VI tax paid in 1994?
It is our view that the corporation may carry back the Part I tax paid in 1995. Subsection 190.1(3) of the Act allows a corporation, in computing its Part VI tax payable for a year, to deduct such part of its unused Part I credits for its 7 taxation years immediately before, and 3 taxation years immediately after the year. Subsection 190.1(5) provides that, for the purposes of subsection 190.1(3), a corporation's "unused Part I tax credit" for a taxation year ending after 1991 to be the excess of its tax payable under Part I for the year over the sum of its Part VI tax for that year (computed without reference to subsection (3)) and its Canadian surtax payable for the year. There is nothing in the legislation, in our view, which would prevent a corporation which is not a financial institution for the purposes of Part VI for a particular taxation year from accruing unused Part I credits for that year. Subsection 190.1(6) limits the use of such credits where a corporation has undergone a change of control. However, there does not appear to be any limits to the use of unused Part I credits based on the corporation's status as a financial institution for the purposes of Part VI. Thus, it may be anticipated that similar issues would arise where a corporation becomes a financial institution for Part VI purposes and seeks to carry-forward unused Part I credits from prior taxation years.
As you have noted, proposed reforms to the financial services sector may result in such changes in status becoming more common. XXXXXXXXXX
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. 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, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (613) 994-2898. A copy will be sent to you for delivery to the client.
F. Lee Workman
Manager
Financial Institutions
Financial Industries Division
Income Tax Rulings Directorate