2015-0600281I7 Ontario Corporate Minimum Tax - net income

Principal Issues: Whether net income for Ontario Corporate Minimum Tax (CMT) purposes includes other comprehensive income reported under International Financial Reporting Standards (IFRS).

Position: Yes

Reasons: Net income for Ontario CMT purposes is a corporation’s financial statement net income, before income taxes, determined in accordance with Generally Accepted Accounting Principles (GAAP). Where a corporation uses IFRS for purposes of GAAP, it is appropriate to use “Total comprehensive income” as a starting point in determining adjusted net income/adjusted net loss (“ANI/ANL”), provided the consolidation and equity methods of accounting are not used. However, some items reported in the “Statement of Comprehensive Income” may need to be removed in arriving at the corporation’s ANI/ANL.

Author: Hooey, Kathy
Section: 54(2), 56(1), 57(1), 58(1), of the Taxation Act, 2007; subsection 9(1) of Ontario Regulation 37/09

                                                                                                                                           November 14, 2016

Thomas Loo                                                                                                                        Lita Krantz, Manager
Large File Auditor                                                                                                                Deferred Income Plans, Section 44
Toronto East TSO                                                                                                                Income Tax Rulings Directorate
200 Town Centre Court, 9th Floor                                                                                       Legislative Policy Regulatory Affairs Branch
Scarborough ON  M1P 4Y3

                                                                                                                                            2015-060028

Corporate Minimum Tax-Net Income under IFRS

We are writing in response to your request regarding the correct amount to be used for net income or loss for Ontario Corporate Minimum Tax (“CMT”) purposes.  Specifically, you asked whether net income or net loss for CMT purposes means “Total comprehensive income” reported on the “Statement of Comprehensive Income” prepared in accordance with International Financial Reporting Standards (“IFRS”). We apologize for the delay in our response.

As you are aware, CMT is determined based on a corporation's adjusted net income or adjusted 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 a corporation's ANI/ANL is the corporation’s net income or net loss for the year, with certain adjustments designed to improve the fairness of the base.  A corporation’s net income or net loss is defined in subsection 54(2) of the TA to generally be the corporation's financial statement net income or loss, before any income taxes, for the fiscal period coinciding with the taxation year, as determined in accordance with generally accepted accounting principles ("GAAP").

The Canada Revenue Agency (“CRA”) interprets all references to GAAP in CRA documents or tax legislation as references to “IFRS” for entities that report under IFRS. Since IFRS reporting is considered Canadian GAAP, it is appropriate to use “Total comprehensive income”, representing a combination of profit or loss and other comprehensive income (“OCI”), as a starting point for computing ANI/ANL. Since certain items included in OCI will not be recognized in a corporation’s Profit or Loss, they would be missed in computing ANI/ANL if the corporation were only to use the Profit or Loss component from the “Statement of Comprehensive Income”.  For example, a defined benefit plan remeasurement is not recognized in Profit or Loss but presented as a component of OCI and should be included in ANI/ANL excluding any related tax effect.

Some of the items reported in “Total comprehensive income” will be removed in computing ANI/ANL.  Additional adjustments are required pursuant to the definitions of “B” and “C” in subsection 57(1), and the rules contained in Ontario Regulation 37/09 to determine ANI/ANL for a year. In particular, subsection 9(1) of Ontario Regulation 37/09 will remove certain items included in OCI in determining ANI/ANL to the extent that they are not required to be included in computing income for income tax purposes. For example, adjustments for unrealized mark-to-market gains/losses on assets that are not required to be included in computing income for income tax purposes are not included in ANI/ANL for CMT purposes.

In conclusion, where a corporation uses IFRS for purposes of GAAP, it is appropriate to use “Total comprehensive income” as a starting point in determining ANI/ANL provided the consolidation and equity methods of accounting are not used.  However, some items reported in the “Statement of Comprehensive Income” may need to be removed in arriving at the corporation’s ANI/ANL.

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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