Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues:
Whether the Ontario tax (OSAT) paid by life insurance corporations pursuant to section 74.1 of the Corporations Tax Act is deductible for Federal income tax purposes.
Position:
Yes
Reasons:
OSAT is structured as a provincial capital tax. Unlike income taxes, provincial capital taxes are incurred in the course of earning income, are levied even if a taxpayer has no taxable income, and are considered to be deductible unless specifically prohibited by the Federal Income Tax Act.
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2005-016062
March 6, 2006
Dear XXXXXXXXXX :
Re: Deductibility of Ontario Special Additional Tax on Life Insurers
This is in reply to XXXXXXXXXX 's letter of November 24, 2005, and our telephone conversations relating to the deductibility of Ontario's special additional tax imposed on life insurance corporations. In general, subsection 74.1(1) of the Corporations Tax Act R.S.O 1990 c. C.40 requires that life insurance corporations carrying on business in Ontario pay a tax (OSAT) equal to the amount, if any, by which 1.25 percent of their taxable paid-up capital determined under section 74.1, exceeds the amount of tax payable by the corporation under Parts II and II.1 of the Corporations Tax Act. You have requested our views on whether an insurance corporation is entitled to claim a deduction for OSAT in computing its income under the Income Tax Act (the "Act").
General Comments
The OSAT paid in accordance with subsection 74.1(1) is structured as a provincial capital tax. A profit or income tax is not deductible in computing the taxable income of a taxpayer because it is not incurred in the course of earning income, but rather it is incurred after income has been earned. However, provincial capital taxes are incurred in the course of earning income, are levied even if a taxpayer has no taxable income, and are considered to be deductible unless specifically prohibited by the Act. Accordingly, a life insurance corporation will be entitled to claim a deduction for OSAT, which as noted above is the amount determined after the deduction of tax payable by the corporation under Parts II and II.1 of the Corporations Tax Act, in computing its income under the Act.
XXXXXXXXXX
XXXXXXXXXX
We hope that our comments will be of assistance to you.
Yours truly,
F. Lee Workman
Section Manager
Charitable and Financial Institution Sectors
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Policy and Legislation Branch
XXXXXXXXXX
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