CRA indicates that no arrears interest would arise where non-capital loss carryforwards eliminated a tax payable balance arising from reassessments

A taxpayer reported a capital loss in year 1 of $50 million, which was applied to offset a $1 million capital gain realized in year 1 and a $49 million capital gain realized in year 2. When CRA denied the capital loss, the taxpayer requested that a non-capital loss balance in existence in year 1 be carried forward to offset both taxable capital gains.

CRA noted that s. 161(7) – which contemplates that where there is a carryback of a loss to eliminate a tax payable balance for a taxation year, interest generally will accrue on that balance until a specified effective date of the carryback – does not apply to a low carryforward. Here, provided that the loss carryforward eliminated the tax payable balance otherwise arising from the capital loss denial, no arrears interest would be charged on that assessment.

Neal Armstrong. Summary of 11 May 2023 Internal T.I. 2022-0936701I7 under s. 161(1).