(900026) F.B. Fontaine (613) 957-2094 Dear Sirs:
This is in reply to your letter dated February 5, 1990 requesting a technical interpretation of paragraphs 12(l)(a) and 20(1)(m) of the Income Tax Act (the "Act").
Paragraph 12(l)(a) of the Act deals with the computation of income in respect of amounts received in the course of a business. Accordingly, where the source of income is a property and not a business, paragraphs 12(1)(a) and 20(1)(m) will not have application in respect of amounts received by a taxpayer for the purpose of computing income from the property. In this regard, we agree that subsection 9(1) of the Act would apply to include such amounts in computing profit from the property. Since the term is not defined in the Act, "profit", for the purposes of subsection 9(1), would normally be determined in accordance with generally accepted accounting principles subject to specific statutory rules, where applicable.
We also agree with your interpretation that the deduction of a reserve under paragraph 20(1)(m) is at the discretion of the taxpayer. In computing income from a business for a taxation year, a taxpayer may deduct any amount as a reserve pursuant to that paragraph, provided that the amount is reasonable.
The above comments constitute an expression of our opinion only and should not be construed as a binding advance ruling. We would add that whether or not income is from a source that is business or property is always a question of fact to be determined on the particular circumstances.
Yours truly,
for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch