13 February 2002 External T.I. 2002-0119955 - TERMINAL LOSS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Whether an employee can claim terminal loss. How the remissions process works.

Position: An employee cannot claim a terminal loss. General comments provided regarding remissions process.

Reasons: Subsection 8(2) of the Act denies the deduction otherwise claimed under subsection 20(16) of the Act.

XXXXXXXXXX 2002-011995
A. Seidel, CMA
(613) 957-2058
February 13, 2002

Dear XXXXXXXXXX:

Re: Terminal Loss of Employee

This is in response to your recent enquiry and our telephone conversation (Seidel/XXXXXXXXX) of January 22, 2002 concerning the deductibility of a terminal loss, pursuant to subsection 20(16) of the Income Tax Act (the "Act"), in computing income from an office or employment.

The particular circumstance on which you have asked for our views appears to be a factual situation. As explained in Information Circular 70-6R4, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a completed transaction, you should submit all relevant facts and documentation to the appropriate tax services office for their views. However, we are prepared to offer the following general comments which may be of assistance.

A terminal loss is deductible in computing income from a business or property pursuant to subsection 20(16) of the Act. A terminal loss is determined by using the formula in the definition of "undepreciated capital cost" in subsection 13(21) of the Act.

Section 8 of the Act enumerates the deductions that an employee may deduct in computing income from an office or employment. Subsection 8(2) of the Act states that "except as permitted by this section, no deductions shall be made in computing a taxpayer's income for a taxation year from an office or employment". Since a terminal loss is computed under subsection 13(21) of the Act, is deductible pursuant to subsection 20(16) of the Act and since there is no provision in section 8 of the Act which permits an employee to deduct a terminal loss in computing income from an office or employment, an employee is unable to deduct a terminal loss in computing income from an office or employment by virtue of subsection 8(2) of the Act.

You also enquired about the processes available to further address this issue, in particular, the remission process.

Under the Financial Administration Act, the Governor in Council, on the Minister's recommendation, may remit taxes where the Governor in Council considers that the collection of the tax is unreasonable, unjust or that it is otherwise in the public interest to remit the tax. The Canada Customs and Revenue Agency (the "CCRA") has developed guidelines which set out when a remission of income tax will be considered, such as in cases of extreme hardship, incorrect action or advice from CCRA officials and financial setback coupled with extenuating circumstances. Consideration of requests for remission of income taxes involves an extensive and objective review of the facts of each particular situation and a careful evaluation of the merits of the request for fair and uniform application of the established criteria. However, it should be noted that a remission of tax is not normally granted where, as in the case outlined above, the Income Tax Act contains rules that specifically cover a particular situation. Nevertheless, the Legislative Policy Division is responsible, among other matters, for managing the income tax remission program. Should you wish to contact them, the person to contact is:

Mr. Wayne Adams

Director
Legislative Policy Division
Place de Ville
22nd Floor, Tower A
320 Queen Street
Ottawa, Ontario
K1A 0L5

We hope that our comments are of assistance.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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