a) A qualifying entity filed a CEWS application at its May 31, 2020 taxation year end for period 1 (ending April 11, 2020) for $100,000, which was received in June 2020. When was that amount to be included in computing its income?
b) A qualifying entity filed all its applications for periods 1 to 4 on December 15, 2020, which was subsequent to its filing its return on October 31, 2020 for its taxation year ending on June 30, 2020. Is it required to amend that return to include the claim amounts in its June 30, 2020 taxation year – or would CRA permit those amounts to instead be included in the subsequent year?
a) CRA indicated that, under Candarel, “in ascertaining profit, the taxpayer is free to adopt any method which is not inconsistent with the provisions of the ITA, established case law principles or ‘rules of law’ and well-accepted business principles,” and then stated that inclusion of those amounts under s. 9 “would be … a method which would yield an accurate picture of the taxpayer’s profit for the taxation year ending on May 31, 2020.” On the other hand, where based on Candarel it was determined that there should be no such s. 9 inclusion, then there would be an inclusion for the same taxation year under s. 12(1)(x) as a result of the application of s. 125.7(3) (deeming the amounts to be government assistance).
b) CRA indicated that similar principles applied in this scenario, so that under s. 9, or under ss. 125.7(3) and 12(1)(x), the CEWS claims amounts would be required to be included in income for the June 30, 2020 taxation year, except that if s. 9 did not apply, s. 125.7(3) would deem assistance for period 4 to fall on July 4, 2020, which would ultimately result in an inclusion under s. 12(1)(x) in the June 30, 2021 taxation year. CRA then stated:
[S]ince the taxpayer has not included the amounts of the CEWS in the calculation of its income at the time its tax return was filed (in October 2020) for its taxation year ending on June 30, 2020, it would be necessary to subsequently file an amended tax return to include the amounts of the CEWS, for periods 1 to 3, in the taxpayer’s income for its taxation year ending on June 30, 2020. CRA will not grant any administrative relief to allow the taxpayer to include the amount of the CEWS in its income for a taxation year other than the one that ends on June 30, 2020.