Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: What is the effective interest date under paragraph 161(7)(b) in a given
Position: The latest of the days referred to in paragraph 161(7)(b) would be at the time that the taxpayer requested that the additional loss for year 4 be carried back to the prior years.
Reasons: The legislation
April 29, 2008
Large File Section Income Tax Rulings
Ottawa Tax Services Office Directorate
333 Laurier Avenue West Ted Harris
10th Floor (613) 957-2114
Ottawa ON K1A 0L9
Determination of Effective Interest Date
We are writing in response to your email message of April 14, 2008 wherein you requested our opinion as to the effective interest date pursuant to subsection 161(7) of the Income Tax Act in the following situation:
Prior to your audit of the taxpayer's corporate tax return for year 4, the taxpayer had reported a non-capital loss of XXXXXXXXXX for that year that was carried back to year 1, with an effective interest date ("EID") being the date of filing for the year 4 tax return.
As a result of your audit, the non-capital loss incurred in year 4 was increased from $XXXXXXXXXX to $XXXXXXXXXX as a result of denying certain expenses that had been accrued in previous years and allowing the deduction in year 4. The income reported in those previous years had been increased by a corresponding amount. On April 1, 2008, the taxpayer indicated concurrence with the reassessments and requested a carryback of the year 4 non-capital loss as follows:
Apply to reduce taxable income in Year 1 - $XXXXXXXXXX and
Apply to reduce taxable income in Year 3 - $XXXXXXXXXX .
This reassessment was processed on April 3, 2008 and the taxation centre has reassessed on the following basis:
Applied to Year 1 - $XXXXXXXXXX - EID = Original filing date of year 4 return;
Applied to Year 1 - $XXXXXXXXXX - EID = April 1, 2008, being the date that the carryback of the additional losses was requested; and
Applied to Year 3 - $XXXXXXXXXX - EID = April 1, 2008, being the date that the carryback of the additional losses was requested.
Although you believe that the EID used by the taxation centre is consistent with CRA practice, the taxpayer believes that the EID should be the original filing date of the year 4 return for the entire $XXXXXXXXXX of losses carried back. As there is a significant amount of interest at stake, you have requested our interpretation of how subsection 161(7) would apply to this situation.
Paragraph 161(7)(b) of the Act provides that where a taxpayer has a loss carryback that the amount by which the taxpayer's tax payable for the year is reduced as a consequence of the loss carryback is deemed to have been paid on account of the taxpayer's tax payable for the year on the day that is 30 days after the latest of:
(i) the first day immediately following the taxation year in which the loss arose,
(ii) the day on which the taxpayer's return of income for the taxation year in which the loss arose was filed,
(iii) where an amended return of the taxpayer's income for the year or a prescribed form amending the taxpayer's return of income for the year was filed in accordance with subsection 49(4) or 152(6) or paragraph 164(6)(e), the day on which the amended return or prescribed form was filed, and
(iv) where, as a consequence of a request in writing, the Minister reassessed the taxpayer's tax for the year to take into account the loss carryback, the day on which the request was made.
In the situation described, it is our opinion that the latest of the dates referred to in (i) to (iv) above would be determined in the following manner.
With respect to the $XXXXXXXXXX non-capital loss originally reported on the taxpayer's corporate tax return for year 4, the EID with respect to this portion of the loss that was carried back to year 1 should not change since the request to carryback that portion of the loss was made at the time that the tax return for year 4 was filed. With respect to the additional non-capital loss determined as a result of your audit, a request for carryback of this portion of the loss was only made at the completion of the audit on April 1, 2008 with the result that April 1, 2008 would represent the latest of the days described in (i) to (iv) above.
We trust that these comments will be of assistance.
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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