Principal Issues: 1) Whether the interest paid on property taxes can be deduct in the calculation of business income under section 9 of the ITA. 2) Whether a penalty added by a municipality under section 250.1 of the Municipal Taxation Act will be covered by section67.6 of the ITA.
Position: 1) The interest imposed on an unpaid balance of property taxes will be deductible if the property taxes themselves are deductible. 2) A penalty imposed under section 250.1 of the Loi sur la fiscalité municipale [Act respecting municipal taxation] is covered by section 67.6 and cannot be deducted in the calculation of business income.
Reasons: The Act.
XXXXXXXXXX Isabelle Landry
M. Fisc
2017-068812June 26, 2020
Dear Mr. XXXXXXXXXX,
Subject: Deductibility of interest and penalties imposed on property taxes
This letter is in response to your letter of January 31, 2017, in which you asked whether interest paid on property taxes can be deducted pursuant to section 9 of the Income Tax Act (the "ITA") in computing business income. You also wish to know whether a penalty added by a municipality pursuant to section 250.1 of the Act respecting municipal taxation (footnote 1) ("AMT") will be subject to section 67.6 of the ITA.
Our comments
This technical interpretation provides general comments about the provisions of the Act and related legislation. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC70-6R11, Advance Income Tax Rulings and Technical Interpretations.
We are of the view that the interest imposed on an unpaid balance of property taxes pursuant to section 250 of the AMT may be considered an expense made for the purpose of earning business income and, consequently, be deductible pursuant to section 9 of the ITA. For the purposes of calculating its profit, the taxpayer must adopt a method of computation that is not inconsistent with the ITA or other established rules of law, that is consistent with well accepted business principles and that gives an accurate and fair view of its profit. Thus, interest charged on an unpaid balance of property taxes will be deductible if the property taxes themselves are deductible.
In addition, section 67.6 of the ITA prohibits the deduction in computing income of any penalty imposed under the laws of a country or a political subdivision thereof. A penalty imposed under section 250.1 of the AMT therefore comes within this provision and cannot be deducted in computing business income.
Best regards,
Michel Lambert, CPA, CA, M. Fisc.
Manager
Employment Income Section
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 R.S.Q., c. F-2.1.