8 May 2012 Internal T.I. 2012-0445061I7 - Effective Interest Date

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 of a request to carry back additional non-capital losses found in an audit?

Position: In this case, the effective interest date is the date of the request to carry back the additional losses.

Reasons: If the taxpayer had originally requested to carry back sufficient losses to reduce the taxable income of the prior year to nil or, if the losses were not sufficient to do so, all of the losses in the loss year, the CRA would have treated the new request as part of the initial request with the same effective interest date. However, in this case, the losses had not been previously carried back as described above. Therefore, the request to carry back the additional losses is a new request and the effective interest date is 30 days after the date of the new request pursuant to subparagraph 161(7)(b)(iv).

		May 8, 2012

	Toronto East Tax Services Office	HEADQUARTERS
	Appeals Division	Income Tax Rulings
		  Directorate
	Attention: Ivan Pereira	Lindsay Frank
	                 CTAO Appeals Officer 	(613) 957-2097

		2012-044506

Loss Carry Back Effective Interest Date

We are replying to your request for a technical interpretation regarding the application of a loss carry-back from one taxation year (the “Loss Year”) to an earlier taxation year (the “Prior Year”). At issue is the effective interest date (the “EID”) of the loss carry-back (i.e., the date on which the loss is applied to reduce tax payable).

Paragraph 161(7)(b) of the Income Tax Act (the “Act”) states that the EID for a loss carry-back is 30 days after the latest of four dates. For the purposes of this interpretation, the relevant provisions are:

(ii) the day on which the tax return for the Loss Year was filed; and
(iv) where the losses are carried back as a consequence of a request in writing from the taxpayer, the date the request was made.

You have advised us that your situation involves subparagraphs 79(7)(b)(ii) and (iii) of the Corporations Tax Act (Ontario), which are essentially the same as the above-mentioned provisions of the Act. You have asked us to respond in the context of the (federal) Act.

If a taxpayer, on filing a return, requested that current-year losses be carried back to a Prior Year (the initial request), subparagraph 161(7)(b)(ii) of the Act would apply. If a subsequent audit of the Prior Year results in an increase in taxable income, the taxpayer may make a request (a second request) to apply additional losses from the Loss Year to offset the increased taxable income. If the initial request was to carry back sufficient losses to reduce taxable income to nil, the Minister would treat the second request as an extension of the initial request. As a result, the second request would be granted the same EID as the initial request.

Likewise, we would accord the same treatment to a situation where the Loss Year did not have sufficient losses to reduce taxable income in the Prior Year to nil, but a subsequent audit resulted in increased losses in the Loss Year. If the taxpayer had originally requested to carry back all of the losses, a request to carry back the additional losses found in the audit would be treated as part of the original carry-back request.

On the other hand, if the return for the Loss Year (or a taxation year between the Prior Year and the Loss Year) did not contain a request to apply sufficient losses to reduce taxable income in the Prior Year to nil (or to apply all of the available losses at the time of filing), then any subsequent request to apply losses would be a new request to which subparagraph 161(7)(b)(iv) would apply. Consequently, we agree with your position that the EID would be based on the date of the new request.

Should you have any questions or require additional information, please do not hesitate to contact Lindsay Frank at the telephone number provided at the outset.

Terry Young CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch