CRA indicates it may accept adjusting losses carried back provided that the amendment request is made within the s. 152(4)(b)(i) period and the loss year is not statute-barred

Opco carried back non-capital losses from its 2019 and 2020 taxation years to its 2016 to 2018 taxation years. This had the effect of reducing its GRIP under “B” of the GRIP formula, so that dividends paid by it in its 2020 year, which it had designated as eligible dividends, were excessive and subject to Part III.1 tax.

CRA indicated that it had the discretion to grant a request to reduce the carrybacks so as to eliminate the GRIP reduction and associated Part III.1 tax (so that it might grant such request if it was satisfied that this was “a situation involving a bona fide error and not amounting to retroactive tax planning) provided that the loss years (2019 or 2020) were not statute-barred and that the request to reduce the carryback satisfied “the conditions … in subparagraphs 152(4)(b)(i) and 152(4.01)(b)(i) in respect of the [prior] Years.” The quoted requirement seems to indicate that CRA would consider itself precluded from accepting a carryback reduction request except in the highly unusual circumstance where the request was made before the s. 150 filing deadline (made applicable by s. 152(6)(c)) for the 2019 or 2020 year, as applicable (which did not appear to be the case here, as enough time had passed in order for the Part III.1 tax to have been already assessed).

In the (unlikely) event that such carryback reduction occurred, CRA considered that it would be authorized to make a consequential reassessment to reduce the Part III.1 tax that had been initially assessed “since the reassessment could be considered to be required to be made pursuant to subsection 152(6)” (which explicitly required the acceptance of the initial timely carryback requests).

Neal Armstrong. Summaries of 17 November 2022 External T.I. 2021-0919001E5 F under s. 89 – GRIP – B, s. 152(4)(b)(i), s. 152(6)(c), s. 152(3) and s. 185.1(2),