Canco, which did not prepare a detailed calculation of its exempt surplus, hybrid surplus and taxable surplus accounts, nor of its hybrid underlying tax and underlying foreign tax accounts in respect of FA. FA claimed a s. 113(1) deduction (the “113 Deduction”) equalling the amount of a dividend received from a wholly-owned foreign affiliate (“FA”) based on the general ordering rules in Regs. 5900(1) and 5901(1). Should a more careful review indicate that the dividend was not otherwise fully sheltered by the 113 Deduction, Canco would wish to utilize the adjusted cost base (“ACB”) of the FA shares.
Are detailed surplus account computations essential to support the 113 Deduction?
CRA indicated that if a complete surplus computation is not provided to it, its current general practice is to deny the deduction under s. 113(1). Furthermore, s. 230(1) specifically requires taxpayers to retain records and books of account in such form, and containing such information, as will enable the determination of taxes payable under the Act. An unsupported s. 113(1) claim could be subject inter alia to ss. 152(4), 163(2), 163(2.2) or 239(1), depending on the circumstances.