5-911723
Dear Sirs:
Re: Large Corporations Tax
We are responding to your letter of June 14, 1991, with further information Provided in a telephone conversation on August 13, 1991 19(1) (Goldstein), regarding Part I.3 of the Income Tax Act (the Act") specifically, the calculation of taxable capital and investment allowance for determining the large corporation tax where a "reserve" may have been recognized on non-depreciable assets for accounting purposes.
In those situations in which there has been a permanent impairment in the value of the investment, any write-down to reflect the reduced value would not normally be considered to be a reserve for the purpose of computing the capital of the corporation pursuant to paragraph 181.2(3)(b) of the Act. Also, for the purpose of computing the investment allowance of the corporation pursuant to subsection 181.2(4) of the Act, it will be the revised carrying value of the particular investment asset subsequent to the write-down which will be utilized. If, however, a corporation reflects a possible or contingent decline in the value of an investment by way of a reduction to retained earnings and the establishment of a reserve for such possibility in the financial statements, it is the view of the Department that such an amount would constitute a reserve, within the meaning of that term in subsection 181.(1) of the Act, for the purpose of computing the capital of the corporation pursuant to paragraph 181.2(3)(b) Of the Act. The carrying value or the long-term investment would be determined in accordance with subsection 181.(3) of the Act and would be included in the investment allowance of the corporation to the extent that the asset otherwise qualifies for inclusion. We would note that it is always a question of fact in any particular instance as to whether a decline in the value of an asset is temporary or otherwise.
While we trust the foregoing comments are of assistance, they do not constitute an advance income tax ruling and, therefore, are not binding on Revenue Canada, Taxation, in respect of a specific situation.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate