CRA finds that allowable capital losses are not grossed up when applied against capital gains that are grossed up under s. 100(1)(b)

It was suggested to the Directorate that where taxable capital gains had been increased to 100% of the capital gains amount pursuant to s. 100(1)(b), allowable capital losses that were carried back or forward to be deducted from such taxable capital gains pursuant to s. 111(1)(b) should also be effectively increased to 100% of the capital losses that had generated them. The Directorate disagreed, stating:

While paragraph 100(1)(b) deems a higher amount of a taxable capital gain from the disposition of a partnership interest to be included in income, it does so by ignoring and not adjusting the fraction under section 38 for purposes of determining the allowable capital loss (or taxable capital gains). The amount of the allowable capital loss … is then still determined under the ordinary rules in section 38.

Neal Armstrong. Summary of 21 September 2021 Internal T.I. 2021-0907861I7 under s. 111(1.1)(a)(ii).