2020-0856791E5 CEWS - meaning of inflow

Principal Issues: Would the CRA be willing to provide additional examples of how “inflow” should be interpreted for the purposes of determining qualifying revenue and, specifically, whether “inflows” should reflect amounts that get invoiced or amounts that ultimately get booked as revenue (which may not be the same e.g. pass through costs)?

Position: General comments provided

Reasons: See below

Author: Thibault, Stéphane
Section: 125.7

XXXXXXXXXX
                                                                                                                            2020-085679
                                                                                                                            S. Thibault, CPA, CA,
                                                                                                                            LL.M. fisc.

October 26, 2020

Dear XXXXXXXXXX,

Re: CEWS – Meaning of inflow       

We are writing to you in response of your e-mail sent to Mr Tracy Annett on June 19, 2020, wherein you are requesting our position regarding different matters related to the Canada Emergency Wage Subsidy (CEWS) under recently enacted section 125.7 of the Income Tax Act (the “Act”).

More precisely, in one of the questions sent to Mr Annett (question 4), you asked if the CRA would be willing to provide additional examples of how “inflow” should be interpreted for the purposes of determining qualifying revenue and, specifically, whether “inflows” should reflect amounts that get invoiced or amounts that ultimately get booked as revenue. You also provided a specific example of an industry with two business lines and asked how should qualifying revenue be determined for each of the business lines.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation. 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 IC70-6R10, Advance Income Tax Rulings and Technical Interpretations (“Circular IC70-6R10”).

The definition of “qualifying revenue” under subsection 125.7(1) enacts that qualifying revenue of an eligible entity means the inflow of cash, receivables or other consideration arising in the course of its ordinary activities in Canada, generally from the sale of goods, the rendering of services and the use by others of resources of the eligible entity. For greater certainty, qualifying revenue excludes amounts from extraordinary items, amounts on account of capital and amounts from persons or partnerships that the eligible employer was not dealing with at arm's length.

Subsection 125.7(4) enacts that the qualifying revenue of an eligible entity is generally determined in accordance with its normal accounting practices. Normal accounting practices may vary from taxpayer to taxpayer. As noted in paragraph 19 of the Circular IC70-6R10, there are situations in respect of which our Directorate will not or cannot issue an advance income tax ruling (“ruling”). In situations involving an opinion on accounting or commercial principles, practices, or guidelines, we will not issue a ruling or a technical interpretation.

We trust our comments will be of assistance.

Yours truly,

Michel Lambert, CPA, CA, M. Fisc.
Manager
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

UNCLASSIFIED

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