Impact of the IFRS on taxable income

The Income Tax Act does not specify that financial statements must be prepared following any particular type of accounting principles or standards to determine profit.

As the Supreme Court of Canada stated in Canderel Ltd v The Queen 98 DTC 6100, the determination of profit is a question of law. When determining profit, the taxpayer is free to adopt any method which is not inconsistent with:

  • the provisions of the Income Tax Act
  • established case law principles or "rules of law"
  • well-accepted business principles

Well-accepted business principles, which include but are not limited to the form codification found in generally accepted accounting principles (GAAP), are not rules of law but interpretive aids.

The Canadian Accounting Standards Board (AcSB) requires publicly accountable enterprises to use International Financial Reporting Standards (IFRS) in the preparation of all interim and annual financial statements.

The Canada Revenue Agency (CRA) considers financial statements prepared under IFRS to be an acceptable starting point for computing taxable income. As well, all references to GAAP in CRA documents or tax legislation can be interpreted as IFRS for those entities that report under IFRS.

The CRA expects taxpayers to apply IFRS on a consistent basis to all income tax filing and all years.

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