CRA confirms its policy of not assessing interest on loss substitutions
Aco first applied a $1,000 non-capital loss from Year 1 to offset a $1,000 taxable capital gain realized in Year 2. However, it then realized a $1,000 allowable capital loss in Year 3 and filed an amended Year 2 return to deduct that net capital loss under s. 111(1)(b), thereby restoring its $1,000 non-capital loss from Year 1.
CRA stated that, notwithstanding that the wording of s. 161(7)(b) does not accommodate this:
[I]t remains the CRA’s longstanding administrative practice not to assess interest where there is a substitution of losses, such as the replacement of a non-capital loss from a prior year with a net capital loss from a subsequent year, provided that there was no tax payable on either the original or amended return. Therefore … in the example above, the CRA would not assess interest.
Neal Armstrong. Summary of 21 March 2018 External T.I. 2017-0736291E5 under s. 161(7)(b).