In 2015-0618511I7, recently released, the CRA confirmed that the concept of retained earnings in Canada’s thin capitalization rule in s. 18(4)(a)(ii)(A) of the Income Tax Act (the ITA) is determined under applicable accounting standards.  This means that income allocated from a partnership to a corporate partner under s. 96(1) of the ITA is irrelevant to the corporate partner’s retained earnings for thin capitalization purposes (see page 6).  In addition, in the CRA’s view, a corporation cannot adopt a particular accounting standard (for example, IFRS 9) in its unconsolidated financial statements prepared for tax return purposes unless the corporation adopts this same specific standard in its consolidated financial statements (see page 5).