910142
R.S. Biscaro
(613) 957-2122
24(1)19(1)March 13, 1991
Dear sirs:
This is in response to your letter of January 10, 1991 wherein you requested our views with respect to subsections 55(2) and (5) of the Income Tax Act (the "Act") regarding the computation of income earned and realized ("safe income"). Specifically you asked that we confirm that amounts deducted on account of the additional resource allowance pursuant to paragraph 20(1)(v.1) of the Act in computing income for tax purposes should be added back to taxable income in the computation of safe income on hand.
The paragraph 20(1)(v.1) additional resource allowance is intended to compensate taxpayers for the increased taxable income resulting from the non-deductibility of Crown royalties and similar payments under paragraph 18(1)(m) and related income adjustments under paragraph 12(1)(o) and subsections 69(6) and (7) of the Act. It is our view that these non-deductible amounts would be deducted from taxable income in calculating safe income on hand. It is also our view that the paragraph 20(1)(v.1) deduction does not represent an actual outlay (a "phantom expense" ) and should be added back to taxable income in computing safe income on hand.
for Director Reorganizations and Non-Resident Division Rulings Directorate Legislative and Intergovernmental Affairs branch
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