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E. Mikhail (613) 957-2095
MAR 14 1989
Dear Sirs:
This is in reply to your letter of February 1, 1989 in which you enquired about the calculation of the refundable investment tax credit under the provisions of paragraph 127.1(2)(b) of the Income Tax Act in the following circumstances:
The corporation claiming the refundable investment tax credit is not a "qualifying corporation" as defined in subsection 127.1(2). The corporation has earned during its June 30, 1988 taxation year $10,000 of investment tax credits of which $6,000 were earned before 1988 and $4,000 after 1987. The corporation deducted in its 1988 taxation year investment tax credits of $3,000. You wondered whether for purposes of calculating the 20% refundable investment tax credit earned during the 1988 taxation year under subparagraph 127.1(2)(b)(i), the total investment tax credit deducted of $3,000 could "reasonably be considered to relate" to the total investment tax credit earned after 1987 of $4,000 so that the entire amount of $6,000 of investment tax credits earned before 1988 become eligible for the 20% refundable investment tax credit. You also wondered whether this interpretation would be acceptable if the $3,000 of investment tax credits were not deducted in the 1988 taxation year but instead were deducted in one of the three preceding taxation years.
If the $3,000 represents an amount deducted under 127(5) to which the deeming provision of subsection 127.1(3) does not apply, the $3,000 may be prorated in a reasonable manner between the pre-1988 and post-1987 investment tax credits earned. This would be so whether the amount deducted under subsection 127(5) is deducted for the 1988 taxation year or any of the three preceding taxation years. However, in the particular circumstances described by you, the Department would not ordinarily object if a corporation chooses to relate the $3,000 first to the post-1987 and second to the pre-1988 investment tax credits earned during the 1988 taxation year, in order to maximize the corporation's refundable investment tax credit claim for 1988.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch