Application of paragraph 12(1)(x)
Interpretation Bulletin IT-273R2, Government Assistance General Comments , includes comments on determining the moment in time when a tax credit is considered to have been received. More precisely, paragraph 17 of the bulletin sets out the following position:
“A tax credit or deduction from tax is considered to be received (and therefore included in income if it is an inducement or assistance in respect of the cost of property or an expense) at the earliest of when it is applied:
- to reduce a taxpayer’s tax instalment payable, and
- to create or increase a tax refund or to reduce tax liability for a taxation year.”
We have recently examined the application of paragraph 12(1)(x) of the Income Tax Act (the “Act”) in relation to provincial tax credits. The word “received” is not defined in the Act. Its interpretation is determined using the ordinary meaning of the word as established by the courts. In this regard, the jurisprudence indicates that it is not necessary that an amount be effectively paid. For example, an amount can be constructively received when a fiscal authority credits an amount to the taxpayer’s account.
Moreover, the jurisprudence indicates that a tax reduction is also considered as an amount received when the tax is reduced (see the decision of the Tax Court of Canada in Tioxide Canada Inc. v. Her Majesty the Queen, 93 DTC 1499, [1994] 2 CTC 2569, and confirmed by the Federal Court of Appeal, 96 DTC 6296 (not reported in CTC)).
We are now of the opinion that a tax credit or a reduction in the tax calculation is considered to be received at the earliest of:
- when the amount is applied as a reduction of instalment payments to be paid by the taxpayer, if it is credited to his instalment account by the fiscal authorities; or
- when all the conditions for its receipt are met, at the earliest of:
- when it reduces the tax payable for a taxation year, or
- when it is paid, if it allows for or increases a tax refund.
Paragraph 17 of Interpretation Bulletin IT-273R2 will be amended to take our revised position into account.
Link to Source: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/itnews-29/archived-income-tax-technical-news-no-29.html#P18_659