2015-0595481E5 Ontario Corporate Minimum Tax – Forgiven Debt

Principal Issues: Whether a forgiven amount is included in adjusted net income for Ontario corporate minimum tax (CMT) purposes.

Position: Yes, providing the forgiven amount is included in financial statement net income/net loss under generally accepted accounting principles.

Reasons: There are no legislated adjustments permitted to CMT adjusted net income/net loss for a forgiven amount under the Taxation Act, 2007.

Author: Hooey, Kathy
Section: 56(1), 57(1) of the Taxation Act, 2007

XXXXXXXXXX                                                                                                                     2015-059548

July 7, 2016

Dear XXXXXXXXXX:

Re: Ontario CMT - forgiven debt

We are writing in response to your request, dated June 29, 2015, regarding whether a taxable Canadian corporation (the “Corporation”) is permitted to make an adjustment for a forgiven amount reported in the Corporation’s financial statements when computing its Ontario Corporate Minimum Tax (“CMT”).  You indicate that the Corporation has applied the forgiven amount for taxable income purposes in accordance with section 80 of the Income Tax Act. This has resulted in net income for financial statement purposes being greater than taxable income, causing a CMT liability. We apologize for the delay in our response.

This technical interpretation provides general comments about the provisions of the Ontario Taxation Act, 2007 and related legislation (where referenced).  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 IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.

Our Comments

For a corporation resident in Canada, other than a bank or a life insurance corporation, CMT is determined based on the corporation's adjusted net income or net loss (“ANI/ANL”) for a taxation year pursuant to subsection 57(1) of the Taxation Act, 2007 (the “TA”). The starting point in determining ANI/ANL is a corporation’s net income or net loss, as defined under subsection 54(2) of the TA, for the fiscal period coinciding with the corporation’s taxation year.  Subsection 54(2) of the TA clearly requires that generally accepted accounting principles (“GAAP”) be the basis for determining a corporation’s net income or net loss.  Therefore, if GAAP determines that an economic gain arising on a forgiven amount is to be included in a corporation’s net income or net loss, then the forgiven amount will also be included in ANI/ANL for purposes of subsection 54(2) of the TA.

Further additions or deductions (“adjustment(s)”) to ANI/ANL are permitted if prescribed in section 9 of Regulation 37/09 of the TA. Currently, an amount recognized as an economic gain on a forgiven amount is not one of the prescribed adjustments. Therefore, there is no adjustment permitted under subsection 57(1) where GAAP requires the forgiven amount to be included in the corporation’s net income or net loss.

We trust our comments will be of assistance.

Yours truly,

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

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