EY - Understanding ASPE Section 3800-3805
Understanding ASPE
Sections 3800 and 3805, Government Assistance and Investment Tax Credits
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Seven questions for private business owners: Government Assistance and Investment Tax Credits
A better working world begins with better questions. Asking better questions leads to better answers. To help preparers of financial statements with Canadian accounting standards for private enterprises ("ASPE") Sections 3800, Government Assistance, and 3805, Investment Tax Credits, we've summarized the key aspects of the Sections and offer relevant practical considerations for private mid-market companies through answering seven commonly asked questions.
1 What is government assistance? As defined in paragraph 3800.03, government assistance refers to governmental actions that provide specific assistance to an individual enterprise in order to influence business decisions on matters such as investment, hiring, plant location, etc.
2 How is government assistance related to noncapital items accounted for?
Government assistance toward current expenses or revenues shall be included in the determination of net income for the period. Government assistance may be netted with expenses, shown as a deduction from aggregated expenses or as revenue. When government assistance relates to expenses of future accounting periods, the appropriate amounts shall be deferred and amortized to income as related expenses are incurred.
3 How is government assistance related to capital expenditures accounted for?
Per paragraphs 3800.21-3800.23, government assistance towards the acquisition of fixed assets shall be either:
deducted from the related fixed assets with any depreciation calculated on the net amount; or
deferred and amortized to income on the same basis as the related depreciable fixed assets are depreciated.
Some government assistance programs provide for a remission of excise or sales taxes related to capital expenditures on compliance with the requirements of a specific program. Such remissions reduce the cost of the assets and shall be accounted for as fixed asset cost reductions.
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4 What is a forgivable loan and how is it accounted for?
As described in section 3800.24, a forgivable loan is a type of government assistance in the form of a loan that is forgiven on condition that the "borrower" continues to meet certain requirements specified at the time it was granted. The loan shall be recognized as a grant when the enterprise becomes entitled to receive it and not at the time such loans are forgiven.
5 Under what circumstances is government assistance accrued?
As outlined in section 3800.26 and 3800.27, each government assistance program establishes the conditions under which grant payments will be made to an enterprise. Provided there is reasonable assurance that the enterprise has complied and will continue to comply with the conditions for receipt of the government assistance, the accrual basis of accounting for the assistance is appropriate.
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2 | Understanding ASPE Sections 3800 and 3805, Government Assistance and Investment Tax Credits
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6 What is required to be disclosed with respect to government assistance received by an entity?
Disclosure information can be found in paragraphs 3800.31 and 3800.32. With respect to assistance received and receivable in the current period, an entity shall disclose
the amount thereof;
the amounts credited directly to income, deferred credit or fixed assets;
the relevant terms and conditions applicable to the assistance;
and the amount of any contingent liability for repayment.
With respect to assistance received in prior periods for which any contingent liability for repayment exists, an entity shall disclose
the amount of the contingent liability and
the relevant terms and conditions applicable to the assistance.
With respect to government assistance that has been accounted for as a deferred credit, an entity shall disclose
the amortization method used, including the amortization period or rate.
With respect to a forgivable loan, an entity shall disclose
the unforgiven balance
and an explanation of the terms and conditions relating to its forgiveness.
7 What are investment tax credits? As defined in paragraph 3805.02, investment tax credits are a type of government assistance related to specific qualifying expenditures that are prescribed by tax legislation. The credits may be received as a reduction in income taxes otherwise payable or they may be received by other means. The accounting for investment tax credits is similar to the accounting for government assistance as discussed above.
To learn more about these items or for application guidance, please contact our Private Mid-Market practice at privatecompanyinfo@ca..
Understanding ASPE Sections 3800 and 3805, Government Assistance and Investment Tax Credits | 3
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This publication contains information in summary form, current as of the date of publication, and is intended for general guidance only. It should not be regarded as comprehensive or a substitute for professional advice. Before taking any particular course of action, contact Ernst & Young or another professional advisor to discuss these matters in the context of your particular circumstances. We accept no responsibility for any loss or damage occasioned by your reliance on information contained in this publication.
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