Re: Goods and Services Tax Rebate Employees & Partners
This is in reply to your memorandum dated July 9, 1991 wherein you requested our opinion concerning the application of several amendments to the Income Tax Act (the "Act") as part of Bill C-62. We apologize for the delay in our response.
In your first question you have asked whether an increase in a GST rebate ("rebate"), pursuant to a notice of re-assessment should result in an income inclusion/U.C.C. adjustment to the taxpayer in the year the additional rebate is received or whether the additional rebate will result in a revision to the original income inclusion/U.C.C. adjustment.
Subsection 6(8) of the Act requires that an employee must include in income a rebate relating to an expense in the year in which the rebate is paid. Similarly, where the rebate relates to the capital cost of property, the rebate will reduce the capital cost of the property in the year the rebate is paid. Therefore, if an employee receives a $100 rebate in 1992 which is subsequently increased to $125 in 1993, the additional $25 rebate will result in an income inclusion/U.C.C. adjustment to the employee in 1993 by virtue of subsection 6(8) of the Act.
Conversely, if a rebate relating to capital property is adjusted downwards, say to $75, paragraph 13(7.1)(d) of the Act would require that the $25 repayment be added to the capital cost of the property in the year the rebate is repaid.
21(1)b)
As for the tax implications for partners, rebates received on account of current expenditures are included in income when received pursuant to paragraph 12(1)(x) by virtue of subsection 248(16) of the Act and any rebates repaid (or portion thereof) are deductible in the year they are repaid pursuant to paragraph 20(1)(hh) of the Act. As for capital expenditures, subsection 13(7.1) requires that rebates received reduce the capital cost of property when the rebate is received or conversely, increase the capital cost of property in the year in which a rebate is repaid.
Your next question deals with the income inclusion/U.C.C. adjustment of rebates included in a deceased taxpayer's final return. As stated in your memorandum, a rebate paid and included in a subsection 70(1) return cannot subsequently be dealt with on a future return.
In our opinion, although a deceased taxpayer may not have the right to receive the "accrued" rebate for expenditures incurred in the year of death, since the rebate can only be claimed after the end of the calendar year in which the expenditures were incurred pursuant to section 253 of the Excise Tax Act, the rebate and any additional rebate would still be subject to the provisions of subsection 70(1) of the Act.
For example, in general, payments made in a subsequent year in respect of remuneration from employment for a period up to the date of the employee's death, such as a rebate or an additional rebate, is a payment to which subsection 70(1) applies.
In addition, a notice of re-assessment to include an additional rebate in a subsection 70(1) return would create a tax liability which in turn would attract interest computed from the day the final return was required to be filed to the re-assessment date even though for most of that period the additional rebate was unknown. A similar issue has been dealt with in a previous memorandum which we have attached for your information. A subsection 70(2) return could be available in situations where the taxpayer has the right to receive the rebate such as in the case where the taxpayer dies after the calendar year in which the rebate is to be claimed.
As for your last question regarding whether a rebate should be taxed in a post-bankruptcy return regardless of when the qualifying expenses were actually incurred, we offer the following comments.
As subsection 6(8) and paragraph 12(1)(x) require the rebate to be included in income in the year it is paid, it is our view that the rebate must be included in the bankruptcy return in which it is received. For example, a rebate received prior to bankruptcy would be included in the pre-bankruptcy return while a rebate received after the bankruptcy would be included in the postbankruptcy return regardless of when the qualifying expenses were actually incurred.
B.W. DathDirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch