5-912025
Dear Sirs
Re: Saskatchewan Capital Tax
This is in reply to your letter of July 8, 1991 concerning the deduction for Federal Income Tax purposes of additional Saskatchewan Capital Tax paid Ln 1991 pursuant to amended capital tax return for the year 1989 and 1990.
In summary, we understand that during 1990 the Saskatchewan Capital Tax Act was amended to reduce the rate prescribed for the section 9(1) goodwill deduction to 25% from 50%. The reduced rate is applicable retroactive for fiscal years commencing after June 1988.
24(1)
Without being fully aware of all the circumstances relevant to your client's situation, we hesitate to state which treatment is the most suitable for tax purposes. A definitive answer is more appropriately obtained from the relevant District Taxation Office. We will offer the following comments which hopefully are of some assistance to you.
Two provisions of the Income Tax Act are particularly relevant in determining the appropriate treatment for the additional capital tax. Paragraph 18(1)(a) of the Act will prevent the deduction of an expenditure until it is made or incurred. Subsection 9(1) of the Act directs that income for a taxation year is the profit for the year In the absence of an Income Tax Act definition for profit, numerous court decisions support the concept that profit is firstly determined in accordance with ordinary commercial principles unless provisions of the Income Tax Act require otherwise.
Relying on the information available to us our review indicates that the expenditure for additional 1989 and 1990 Saskatchewan Capital Tax may be deducted in determining the taxpayer's income from business or property for 1991, if the additional amount was incurred in that year. This treatment may be acceptable for tax purposes provided it is also adopted for financial reporting purposes in accordance with GAAP as was indicated in your letter dated July 8, 1991.
The alternative treatment is for the additional Saskatchewan Capital Tax to be deducted in the respective tax years that the additional amounts affect. We understand that taxation years affected are not statute barred under subsection 152(4) of the Act.
We note that the February 26, 1991 Federal Budget includes a proposal to limit deductions for provincial business taxes. At this time we have no information to indicate that the proposal will limit deductions for provincial business taxes paid before 1992.
We should also repeat the Department's position that amounts paid in respect of the Saskatchewan Capital Tax Surcharge are not deductible pursuant to the Income Tax Act.
While we trust that our comments are of assistance to you, we should advise that they do not constitute an advance income tax ruling and are accordingly not binding on the Department.
Yours truly,
ChiefResource Industries SectionBilingual Services and Resource Industries DivisionRulings Directorate
cc W Szyc Chief Audit Applications Division