Question
Many businesses will be adopting international financial reporting standards (IFRS) over the course of the next few years. Others use foreign generally accepted accounting principles (GAAP) because they are part of international corporate groups. What impact will this have on the computation of taxable income, and what is the CRA doing to accommodate and prepare for this change?
Response
The CRA would be prepared to accept financial statements based on current Canadian GAAP or on IFRS as the basis of profit for the purposes of section 9. Statements based on GAAP of another country with similar rules could also suffice, particularly if they were prepared for reasons other than tax returns.
In Canderel Limited v. The Queen,[Footnote 33] the Supreme Court said that the computation of profit is a matter of law, and GAAP is an interpretive aid that is external to the legal determination of profit. Furthermore, many provisions in the Act (particularly sections 10, 12, 18, and 20) allow or require adjustments to reported profit in arriving at income for tax purposes. The impact of these adjustments eliminates for tax purposes virtually all the differences between various methods of income computation for accounting purposes. If an obscure foreign accounting rule resulted in a large tax change, the CRA might question its appropriateness.
Also, a few provisions of the Act make particular reference to accounting rules—for instance, the mark-to-market rules of section 142.2 are based on GAAP. Although a choice of GAAP could result in some timing differences, we would not expect them to be material.
Link to Source: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/itnews-44/archived-income-tax-technical-news-no-44.html#_Toc291739991