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:
Several queries re subsection 15(2) and paragraph 20(1)(j) of the Act.
Position:
See below
Reasons:
See below.
XXXXXXXXXX 2002-015190
Randy Hewlett, B.Comm.
September 6, 2002
Dear XXXXXXXXXX:
Re: Subsection 15(2) and Paragraph 20(1)(j) of the Income Tax Act (the Act)
We are writing in response to your letter dated May 8, 2002, wherein you request our opinion on several issues related to the above-noted provisions of the Act.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office (TSO). However, we offer the following comments to each of the questions in your letter:
1. If a shareholder is required to include a shareholder loan in income pursuant to subsection 15(2) of the Act, is the amount considered property or business income? In your view, an income inclusion pursuant to subsection 15(2) of the Act is property income.
Although subsection 15(2) of the Act is under Subdivision b, Division B, Income or Loss from a Business or Property, the provision does not specify whether the income inclusion thereunder is business or property income.
2. Which line numbers on the T1 are a subsection 15(2) shareholder loan benefit and a paragraph 20(1)(j) deduction reported? It is your view that an amount included in income under subsection 15(2) of the Act should be reported on line 130 of the T1 as an "other income" item and a paragraph 20(1)(j) deduction should be reported on line 232 of the T1 as an "other deductions" item.
We agree with your view.
3. Is an amount included in income under subsection 15(2) of the Act "earned income" (as defined in subsection 146(1) of the Act) for purposes of the RRSP deduction? It is your view that the amount is not included in earned income for this purpose.
We agree with your view.
4. Does a subsection 15(2) shareholder loan benefit and a paragraph 20(1)(j) deduction enter into an individual's "cumulative net investment loss" (CNIL) pursuant to subsection 110.6(1) of the Act? It is your view that these amounts do not enter into the calculation.
In general terms, an individual's CNIL at the end of a taxation year is made up of the amount of any excess of the total "investment expenses" over the total "investment income". The definition of "investment income" in subsection 110.6(1) of the Act states that "investment income of an individual for a taxation year means the total of ... all amounts included in computing the individual's income for the year from property ...other than an amount included under subsection 15(2)". Further, the definition of "investment expense" states that "investment expense of an individual for a taxation year means the total of ... all amounts deducted in computing the individual's income for the year from property ... other than any amounts deducted under ... paragraph 20(1)(j)". Therefore, we agree with your view that these amounts do not enter into the calculation of an individual's CNIL.
5. Is it possible for a paragraph 20(1)(j) deduction to result in a non-capital loss? It is your view that the deduction cannot result in a non-capital loss for an individual.
A "non-capital loss" is defined in subsection 111(8) of the Act by the formula (A+B)-(D+D.1+D.2), where element A is determined by the formula (E-F). Element E of the formula includes among other things a taxpayer's loss for the year from a business or property. When "computing a taxpayer's income for a taxation year from a business or property", paragraph 20(1)(j) of the Act provides a deduction for amounts previously included in computing income under subsection 15(2) where certain conditions are met. In our view, a deduction under paragraph 20(1)(j) of the Act can generate "a taxpayer's loss for the year from ... business or property" for purposes of element E of the formula. Therefore, it is possible that a non-capital loss may result.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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