18 August 1989 Income Tax Severed Letter AC80305 - Reserve in Year of Death

Appeals Branch                          Specialty Rulings
Appeals and Referrals Division          Directorate              
                                        Small Business and       
                                        General Division
J. Yu                                   R.B. Day                 
                                        957-2136
                                        8-0305

20(1)(m) Reserve in the Year of Death

We are writing in reply to your memoranda of June 28, 1989, wherein you requested our views as to whether or not a reserve under paragraph 20(1)(m) is allowable to a taxpayer in the year of death.

Specifically, you have noted that the July 30, 1987, opinion from Audit Applications Division which states that a paragraph 20(1)(m) reserve is allowable in the year of death, contradicts the opinion given by Rulings in February 28, 1975, to the effect that such a reserve allowable in the year of death.

Our Comments

It is our opinion that, since subsection 72(1) does not deny the deduction of a paragraph 20(1)(m) reserve in the year of death, a taxpayer who is otherwise entitled to claim such a reserve may do so in the year of death. This seems clear based on the plain words of the Act, and in our view, is also the appropriate result.

We have informally discussed our view with Audit Applications Division (Phil Jolie) who, while concerned that the revenue in-issue should be reported in some taxpayer's hands, agreed that the late was probably entitled to a reasonable reserve under paragraph 20(1)(m) in the year of death.

In conclusion, it is our opinion that the notice of objection for (deceased) should be allowed in full.

Your appeal files are returned herewith.

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch