Principal Issues: [TaxInterpretations translation]
Is an accounting gain realized by a taxpayer (who has no taxable capital gain or recapture pursuant to subsection 13(1) of the Act) included in gross resource profits, as that term is defined in subsection 1204(1) of the Regulations?
Position:
The accounting gain realized would not be included in the computation of gross resource profits.
Reasons:
Subsection 1204(1) of the Regulations expressly provides that the income or loss referred to in that subsection is to be computed in accordance with the Act.
December 14, 2000
Rouyn-Noranda Tax Services Headquarters Audit Division Sylvie Labarre, CA 44 Lac Ave. (613) 957-8953 Rouyn-Noranda QC J9X 6Z9
Attention: Ms. Louisa Rancourt 2000-005792
Resource profits
This is in response to your memorandum of November 20, 2000, in which you asked whether the accounting gain realized by a taxpayer on the sale of depreciable property should be included in computing resource profits.
Facts
XXXXXXXXXX
In XXXXXXXXXX, the taxpayer considered that the book gain realized on the sale of residences was part of resource profits for the purposes of computing the deduction provided for in paragraph 20(1)(v.1) of the Act.
Question
Does the book gain realized on the sale of the residences form part of gross resource profits and resource profits within the meaning of section 1204 of the Income Tax Regulations (the "Regulations") and modified resource profits within the meaning of section 1210 of the Regulations?
Our Comments
Paragraph 20(1)(v.1) of the Act provides for the deduction of an amount that is computed in subsection 1210(1) of the Regulations. Element A of the computation provided for in subsection 1210(1) of the Regulations represents adjusted resource profits. The formula for computing adjusted resource profits is set out in subsection 1210(2) of the Regulations and includes variable A, which represents resource profits adjusted to take into account certain assumptions set out in the definition of that variable. Those assumptions do not include the inclusion of an accounting gain realized by a taxpayer. Subsection 1204(1.1) of the Regulations provides that resource profits, for the purposes of Part XII of the Regulations, are the amount, if any, by which gross resource profits, as defined in subsection 1204(1) of the Regulations, exceed the amounts described in paragraphs 1204(1.1)(a) to (c) of the Regulations.
Based on your position, provision 1204(1)(b)(ii)(A) of the Regulations would apply in this situation. As you indicated in your position, gross resource profits would be the amount, if any, by which the total of its income from the source referred to in paragraph 1204(1)(b)(ii)(A) exceeds the total of its losses from that source, provided that its income or losses are computed in accordance with the Act, based on certain assumptions. Those assumptions do not include the inclusion of an accounting gain.
Since income or losses must be computed in accordance with the Act, we are also of the view that the accounting gain realized by the taxpayer, not being part of that income, should not be included as gross resource profits. Consequently, the accounting gain would not be included in the description of A in the computation provided for in subsection 1210(1) of the Regulations.
We hope you find these comments helpful. Should you require additional information regarding the content of this document, please do not hesitate to contact us.
Marc Vanasse, CA
for the Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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