April 23, 1990
Scientific Research Audit Specialty Rulings Directorate Applications Section J.D. Brooks Claude LaMarche, A/Chief 957-2097 Audit Applications Division Audit Programs Directorate
Subject: Paragraph 2900(2)(b) of the
Income Tax Regulations File 7-4796We are writing to you in reply to your memorandum of March 5, 1990. In essence, you queried whether it would be possible to administratively consider the word "paid" in paragraph 2900(2)(b) of the Regulations to mean "payable." In support of your request, you pointed out that, as stated in paragraph II of Interpretation Bulletin 151R3, the Department has adopted the administrative position that the word "paid" in paragraph 2900(2)(b) of the Regulations includes reasonable salaries that accrue at year-end between pay periods and similar accruals that have to be paid by law or are paid shortly after the year-end. You also noted that section 78 of the Act was revised effective in 1986 to restrict the potential for abuse relating to payables.
Our Comments
The most typical example of such payables is that of accrued bonuses and we note that this issue was discussed in our memorandum dated July 28, 1988, addressed to J. Daman of your section, concerning the 24(1) . We stated on page 5 thereof that "it is our understanding that the use of the term "paid" in Regulation 2900(2)(b) was deliberate and intended to deny deductions for, and investment tax credits on, such accruals" (i.e. accrued bonuses). The administrative position referred to in the bulletin is a practical but minor concession made to assist district offices in processing refundable investment tax credit claims.
We do not believe that a significant divergence from the actual meaning of the word "paid" can be justified by the recent "tightening" of the rules in section 78.
Director General Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch