2015-0564591I7 Ontario CMT mark-to-market accounting adjustments

Principal Issues: Whether certain liabilities denominated in a foreign currency are considered specified mark-to-market property for purposes of computing adjusted net income for CMT purposes.

Position: No.

Reasons: Liabilities are not property held by the corporation for purposes of the specified mark-to-market rules under the CMT legislation.

Author: Hooey, Kathy
Section: Subsection 57(1) of the Taxation Act (2007); Ontario Regulation 37/09

                                                                                  May 28, 2015

      Rajan Tharmarajah                                             Lita Krantz
      Large Case File Auditor,                                     Manager
      Toronto Centre TSO,                                          Deferred Income Plans, Section 44
      1 Front Street West,                                            Income Tax Rulings Directorate
      Toronto, ON M5J 2X6                                         Legislative Policy Regulatory        
                                                                                  Affairs Branch

                                                                                  2015-056459

      Ontario CMT- mark-to-market accounting adjustments

This is in response to your request for a technical interpretation as to whether a corporation’s account payables denominated in a foreign currency are considered specified mark-to-market property for Ontario corporate minimum tax (CMT) purposes under the Taxation Act, 2007 (the “TA 2007”). 

For taxation years ending after 2008, subsection 9(1) of Ontario Regulation 37/09 of the TA 2007 (the “Ontario Regulation”) prescribes that adjusted net income for CMT purposes include/exclude, inter alia, a corporation’s accounting loss/gain difference for the year. Subsection 9(3) of the Ontario Regulation provides a formula to determine a corporation’s accounting loss/gain difference for the year, if any. A corporation’s accounting loss/gain difference is essentially the amount of mark-to-market changes, in respect of specified mark-to-market property resulting from a decrease/increase in fair value, included in the corporation’s net income or net loss for the year.

Mark-to-market changes are defined in subsection 8(1) of the Ontario Regulation with respect to a specified mark-to-market property held by a corporation to mean changes in the fair value of the property, in accordance with generally accepted accounting principles (GAAP), that occur after the corporation acquires the property and before the corporation disposes of the property.  Pursuant to clause 8(1)(c) of the Ontario Regulation, specified mark-to-market property held by the corporation generally means property, including property denominated in a foreign currency, in respect of which any mark-to-market or foreign currency changes from the beginning to the end of a taxation year of the corporation recorded under GAAP would be reflected in the calculation of the corporation’s net income for the year for CMT purposes if the property were held by the corporation throughout the year. For this purpose, property held by the corporation does not include liabilities.

Accordingly, the relevant provisions provide that adjusted net income for CMT purposes is to be computed to remove fair value changes on assets held by the corporation that are reflected in a corporation’s net income/net loss for the taxation year determined in accordance with GAAP.

We trust our comments will be of assistance.

Yours truly,

Lita Krantz CPA, CA
for Director,
Deferred Income Plans, Section II
Financial Industries and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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