Principal Issues: When an amount is received by a third party before being paid to the eligible entity and the eligible entity has made an election under subparagraph 125.7(4)(e)(i), when is the amount considered to be received by the eligible entity?
Position: None.
Reasons: General comments.
XXXXXXXXXX 2020-086516
January 23, 2023
Dear Sir,
Re: CEWS - subparagraph 125.7(4)(e)(i) and person entitled to receive an amount
This letter is in response to your question regarding the Canada emergency wage subsidy ("CEWS") under section 125.7 of the Income Tax Act (the "Act").
All statutory references herein are to provisions of the Act.
In particular, you requested our comments on the time at which an amount is received by an eligible entity which has made an election under subparagraph 125.7(4)(e)(i), where the amount is received by a third party before being paid to the eligible entity.
Our Comments
This technical interpretation provides general comments on provisions in the Act. It is not intended to confirm the tax treatment of any particular situation involving a particular taxpayer, but rather to assist you in making that determination.
All definitions for the purposes of the CEWS, including the terms "eligible entity" and "qualifying revenue", are set out in subsection 125.7(1).
Subject to certain exceptions, qualifying revenue of an eligible entity is generally determined in accordance with its usual accounting practices under subsection 125.7(4). Among these exceptions, subparagraph 125.7(4)(e)(i) provides that an eligible entity may elect for all of its qualifying periods to determine its qualifying revenues based on the cash method as defined in subsection 28(1), with any modifications that the circumstances require.
Paragraph 3 of Interpretation Bulletin IT-433R (footnote 1) indicates that a taxpayer who computes income using the cash method must include the amounts in income in the period in which they are received or deemed to be received by the Act. That Interpretation Bulletin also states that the meaning of the term "received" is broad enough to consider a taxpayer to have received an amount at the time that inter alia it was received by a person authorized to receive it on behalf of the taxpayer.
The concept of a person authorized to receive an amount on behalf of a taxpayer is not defined in the Act. Whether a person is a person authorized to receive an amount on behalf of a taxpayer for cash accounting purposes is a question of fact and law that can only be determined after a full examination of the applicable private law and all the relevant facts surrounding a particular situation.
However, we are of the view that a person entitled to receive an amount on behalf of a taxpayer for CEWS purposes may include a person who is entitled to receive the amount for a taxpayer by inter alia an agreement or by statute.
We hope you find our comments of assistance.
Best regards,
Isabelle Landry
Manager
Business and Employment Income Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
FOOTNOTES
Due to the requirements of our systems, the footnotes contained in the original document are reproduced below:
1 CANADA REVENUE AGENCY, Interpretation Bulletin IT-433R, ARCHIVE - Farming or Fishing - Use of Cash Method, June 4, 1993.