Words and Phrases - "reflected"

Q.1 Multi-year RUTTs

Where the audited financial statements for a year reflect a recurring uncertain tax treatment (“UTT”) spanning multiple tax years, is the reporting corporation required to report each UTT separately in the prescribed form for the year? CRA responded:

The definition of “tax treatment” is provided by subsection 237.5(1) and refers to treatments that a corporation makes of a transaction, or a series of transactions in a return of income or an information return. As such, each tax treatment relates to a specific return of income or information return for a particular tax year.

Therefore, where there are similar reportable uncertain tax treatments (“RUTTs”) spanning across several tax years, and where each RUTT impacts the taxable income of a different tax year, then each RUTT must be individually disclosed in the prescribed form, namely Form RC3133 … .

Q.2 Meaning of “reflected”

When does the CRA consider that uncertainty in respect of a tax treatment is “reflected” in the financial statements of a taxpayer?

CRA indicated that:

• “based on the context in which the RUTT regime was introduced … the definition of a RUTT should be interpreted broadly.
• The Technical Notes stated that “uncertainty is considered to be reflected in financial statements when the tax attributes used in the financial statements (e.g., taxable profit, tax loss, tax base, unused tax losses, unused tax credits, tax rates) are not consistent with the tax treatment”.
• The CRA Guidance stated that uncertainty is reflected in the financial statements, for example, if “the entity concluded it is not probable that the tax authority will accept an uncertain tax treatment and thus … it is probable that the entity will receive or pay amounts relating to the uncertain tax treatment … .”

CRA then concluded:

Based on the above, we will consider that the uncertainty of tax treatments is “reflected” when such tax treatments impact the relevant financial statements. When that is the case, the RUTTs must be disclosed in Form RC3133 … .

… [T]he notes to the audited financial statements prepared in accordance with … IFRS … or any other country-specific generally accepted accounting principles need to be considered when determining whether the uncertainty of tax treatments is reflected in the relevant financial statements … .