Claim of Right (tax)

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The Claim of Right doctrine established in North American Oil requires that a taxpayer claim profit as income once a claim of right has been established, even though the taxpayer might not be entitled to retain the profits indefinitely. A taxpayer is not required to claim income that has significant restrictions, and which the taxpayer might never have access to. In such a situation, if there is no constructive receipt of the earnings, regardless of whether the company has recorded the income on their books, the taxpayer does not have to claim the profit as income until they have control over the earnings.

In the case that a taxpayer receives earnings without restriction or significant limitations, they have received a claim of right to the earnings, and as a result must claim it as income. This does not mean that the taxpayer is certain that they will be able to retain the earnings after some later legal action, but that the taxpayer now has accession to and ultimate control over the realized gain. If the taxpayer later loses the right to that profit, they would be entitled to a deduction to restore that amount.