10 September 1997 External T.I. 9720635 - DEEMED DIVIDEND

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 Department.

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

Principal Issues: none

Position:

Reasons:

5-972063
XXXXXXXXXX D. Yuen

September 10, 1997

Dear XXXXXXXXXX:

Re: Your letter of July 28, 1997

We are writing in response to the above letter wherein you have requested additional information regarding our letter to you dated July 22, 1997 (the "Letter").

Your Questions

You have asked whether the capital loss of $XXXXXXXXXX described in Comment IV of the Letter can be deducted in 1996.

You have asked whether there are any time or other limitations on the deduction of the capital loss.

As the 1996 Notice of Assessment indicates that there was a net capital loss of $XXXXXXXXXX in 1996, you have requested a reconciliation of that amount to the capital loss of $XXXXXXXXXX described in the Letter.

You have also expressed the opinion that our interpretation of subsection 84(3) of the Income Tax Act, R.S.C. 1985 (5th Supp.) c. 1, as amended (the "Act") should be changed for the reasons outlined in your correspondence to us and as provided in your letter to XXXXXXXXXX dated July 25, 1997.

Our Comments

The calculation of the capital loss as detailed in the Letter was made using the figures that you provided to us. The actual capital loss as calculated in the Notice of Assessment may differ from that described in the Letter. We contacted the Ottawa Taxation Services Office which informed us that a revised Notice of Assessment was being prepared and the revised capital loss for 1996 would be approximately $XXXXXXXXXX. This amount would include the capital loss arising from the redemption of the XXXXXXXXXX shares.

Allowable capital losses (being 3/4 of the capital losses for the year) would reduce taxable capital gains (being 3/4 of the capital gains for the year) in 1996 and may not be deducted from other income of 1996. However, any remaining portion of the 1996 capital loss is called a net capital loss for 1996 and will be available to reduce any taxable capital gains in the previous 3 years and will also be available indefinitely to reduce any future taxable capital gains. Once you have received your revised Notice of Assessment, you should contact the Ottawa Taxation Services Office for the details of the capital loss amount indicated therein.

Any changes to the provisions of the Act would require a change in tax policy and an amendment to the Act. Since tax policy issues and amendments to the Act fall within the purview of the Department of Finance, we will be forwarding a copy of this letter and the Letter along with your letters of May 22, June 2, July 25 and July 28, 1997 to that department so that they will be made aware of your concerns.

Should you have any further questions or need clarification of the above comments, please contact Dan Yuen at 957-8967.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch