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Attention: XXXXXXXXXX
Dear Sir:
RE: Large Corporation Tax
This is in response to your letter of December 10, 1991 in which you requested a technical interpretation in respect of a situation where an automobile dealership is required to both provide chattel mortgages to, and leave on deposit term deposits, with a financial institution to secure financing for its inventory. Your question specifically asked whether the term deposit could be offset by the chattel mortgages for the purpose of calculating Large Corporation Tax pursuant to Part 1.3 of the Income Tax Act (the "Act").
In our opinion the chattel mortgages are required to be included in the taxable capital of the corporation pursuant to paragraph 181.2(3)(d) of the Act. The term deposits constitute a loan or advance to a financial institution and, therefore, are specifically excluded from inclusion in the investment allowance of a corporation by virtue of paragraph 181.2(4)(b) of the Act. Accordingly, it is not appropriate to "net" the term deposits against the chattel mortgages for the purposes of calculating the Large Corporation Tax.
We trust the foregoing comments are of assistance.
Yours truly, for Director Financial Industries Section Rulings Directorate