CRA confirms that the FAT reinstatement rule applies on a year-by-year basis

Reg. 5907(1.4) provides that a payment made by one foreign affiliate (earning foreign accrual property income) within a consolidated group to another in respect of the foreign income taxes it has saved through in effect accessing a group company's active business loss will not be deemed to be foreign accrual tax because that loss was not a foreign accrual property loss.  Regs. 5907(1.5) and (1.6) typically allow for reinstatement of the denied FAT deduction when in a subsequent year the active business loss is applied against active business income of that year.

Not surprisingly, CRA has confirmed that when this occurs, the Canadian taxpayer in question will get a FAT deduction (under s. 91(4)) in that subsequent year rather than in the original year.

Neal Armstrong.  Summary of 6 February 2015 T.I. 2014-0542281E5 under Reg. 5907(1.5).