CRA confirms that unrestricted net capital loss deductibility under s. 111(2) applies only in the terminal year and the immediately preceding year

CRA has provided an intelligible translation of the convoluted language in s. 111(2):

[I]f, in the year of death, a taxpayer has a net capital loss or any unused net capital losses carried forward from prior years, the special rules in subsection 111(2) … allow the deduction of such losses (less the amount of any capital gains exemption claimed …) up to the amount of the taxpayer’s available income from all sources for the year of death and the immediately preceding year.

In response to a taxpayer who, like Oliver Twist, wanted MORE, the Directorate stated:

Parliament intended for this concession to apply only in the year of death and the immediately preceding year. Accordingly, if there is a balance of unused net capital losses remaining after applying the unused net capital losses against all sources of income in the year of death and immediately preceding year … such unused net capital losses are not transformed into a non-capital loss that can be carried back to another taxation year other than as described above.

Neal Armstrong. Summary of 21 November 2017 External T.I. 2017-0690651E5 under s. 111(2).