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CRA Continues to Provide Two-Sided Relief for Disallowed Management Fees - by Pam Prior 

Canadian Tax Adviser


December 18, 2012


Pam Prior
Vancouver, Enterprise Tax


In a recent technical interpretation, the CRA confirmed its earlier 1986 position that, under certain conditions, where a taxpayer has been disallowed a deduction for an intercompany charge (such as a management fee) under section 67, it will make any appropriate adjustments to provide relief to the recipient to avoid taxing the same amount twice.

The CRA was asked to confirm whether its policy on the disallowance of intercompany charges in Question 39 of the CRA Round Table at the 1986 CTF Annual Conference was still valid. The CRA had previously explained the policy as follows:

Question 39 - Disallowance of intercompany charges


Q: In situations where [the CRA] has, on reassessment, disallowed an intercompany charge such as a management fee (perhaps on the basis of a different interpretation of reasonableness), will it agree to make a compensating adjustment to reduce the related income inclusion of the recipient corporation?


A: In the absence of special situations, such as abuses, it is the department's policy not to tax the same amount twice. This policy may have application where the issue concerns the matter of reasonableness. Where a taxpayer has been reassessed for a disallowance pursuant to section 67 and the reasonable amount has been reported by the recipient corporation, the department will, upon receipt of a written request from the recipient, make the appropriate adjustment(s) granting alleviation provided that the recipient agrees to refund the excess to the taxpayer.


In the circumstances where the recipient is a non-resident residing in a country with which Canada has an income tax convention, competent authority assistance may be requested to negotiate offsetting or corresponding adjustments in order to relieve the double taxation. In the case where the unreasonable or excess amount would also give rise to non-resident tax under Part XIII as a deemed dividend pursuant to paragraph 214(3)(a), the taxpayer is provided the option of repatriating the amount that has been disallowed in order to avoid the non-resident tax.

CRA's comments
In its response, the CRA confirms that its response to this question is still valid. The CRA also referred to an Income Tax Rulings document released in 1997 that confirmed this opinion was valid at that time.


For more information, contact your KPMG adviser.






Information is current to December 18, 2012. The information contained in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG’s National Tax Centre at 416.777.8500.


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