2021-0879231I7 Application of paragraph 12(1)(x) to a forgivable

Principal Issues: Does paragraph 12(1)(x) apply to a forgivable portion of a conditionally non-repayable contribution under the Regional Relief and Recovery Fund (RRRF)?

Position: Yes.

Reasons: The forgivable portion of a conditionally non-repayable contribution is included in the recipient's income in the year received pursuant to paragraph 12(1)(x). The amount of the forgivable portion of the contribution included in income under paragraph 12(1)(x) that is subsequently repaid pursuant to a legal obligation to repay the amount, can be deducted in the year in which the repayment is made by virtue of paragraph 20(1)(hh). Depending on the facts and circumstances, the amount of the conditionally non-repayable contribution may be included in income under paragraph 12(1)(x) but only if such amounts are not otherwise included in income under section 9 or another provision of the Act.

Author: Serdyukova, Yaroslavna
Section: 12(1)(x), 20(1)(hh), 12(2.2), 9(1)

David Gagné-Therrien, CPA, CA, M. Fisc
Senior Rulings Officer
Income Tax Rulings Directorate                                                                            2021-087923
Canada Revenu Agency                                                                                       Yaroslavna Serdyukova

February 15, 2021

Dear Mr. Gagné-Therrien:

Re:   Regional Relief and Recovery Fund (RRRF) loan forgiveness

This is in reply to your emails of January 20, 2021 and January 28, 2021, concerning the timing of inclusion of a forgivable portion of a conditionally non-repayable contribution granted under the Regional Relief and Recovery Fund (“RRRF”).

Originally launched on April 17, 2020, the RRRF is a liquidity assistance lifeline for businesses affected by the COVID-19 pandemic that have been rejected by or were unable to access other federal pandemic support programs, or that continue to have liquidity needs. The RRRF is available through the taxpayer’s Government of Canada regional development agency. Each regional developmental agency adopted its own guidelines, requirements and processes to apply for funding under the RRRF program. Generally, three types of contributions are offered under the RRRF: non-repayable contributions, conditionally non-repayable contributions and repayable contributions. For conditionally non-repayable contributions, if certain conditions are met (e.g. a required portion of a contribution is repaid by a certain date), then the remaining amount of the contribution will be forgiven (the “forgivable portion”).  For more information about RRRF please refer to the relevant Government of Canada’s regional development agency.

Our comments

This technical interpretation provides general comments about the provisions of the Income Tax Act (the “Act”) 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 70-6R10, Advance Income Tax Rulings and Technical Interpretations.

Paragraph 12(1)(x) of the Act provides, inter alia, that government assistance received in respect of an outlay or expense by a taxpayer, in a taxation year, in the course of earning income from a business, must be included in income in the year received except to the extent that the amount is not otherwise included in income (under section 9 or another provision of the Act) or one of the other exceptions in subparagraphs 12(1)(x)(v.1) to (viii) applies. If the amount included in income under paragraph 12(1)(x) is subsequently repaid pursuant to a legal obligation to repay the amount, a deduction can be obtained for the year in which the repayment is made by virtue of paragraph 20(1)(hh).

You have asked when the forgivable portion of a conditionally non-repayable contribution under the RRRF is required to be included in income.     .

In our view, subject to section 9 (or another provision of the Act), the amount of the forgivable portion of the conditionally non-repayable contribution under the RRRF is to be included in the taxpayer’s income in the taxation year in which the amount is received by virtue of paragraph 12(1)(x).

We trust these comments will be of assistance.

Yours truly,

H. Chong
Manager
Partnerships and Corporate Financing Section
Reorganization Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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