CRA will not follow the ARQ in allowing a s. 164(6) loss carryback claim on a terminal return before the GRE’s T3 return is assessed

At the 2019 APFF Provincial Roundtable, Revenu Québec indicated that it is possible to claim the capital loss, realized by a graduated rate estate in its first taxation year and that is subject to the Quebec equivalent of the s. 164(6) carryback election, directly on the deceased's final TP-1 return, where the capital loss is already known at the time the two tax returns are filed.

CRA, for the time being at least, is not budging. It stated:

While there is no provision in the Income Tax Act that prevents the taxpayer's amended T1 Final Return (including the election under paragraphs 164(6)(c) and 164(6)(d)) from being filed before the T3 Return is filed, it is the CRA's administrative practice to assess the T3 Return before the reassessment giving effect to the election can be processed. That practice ensures that the loss claimed and any resulting reduction in tax payable or refund is substantiated.

Relaxing CRA's procedures and any administrative policy in that regard would require a thorough review … . That said, it would be highly unusual for the CRA to allow a loss to be applied to a tax return before the return giving rise to the loss has been assessed.

Neal Armstrong. Summary of 7 October 2020 APFF Roundtable Q. 4, 2020-0852161C6 F under s. 164(6).