25 March 2013 Internal T.I. 2013-0474111I7 - Amendment to Prior Years' CCA

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: Whether the CRA should agree to a request by a taxpayer to reduce the amount of CCA claimed and allowed in prior taxation years.

Position: No.

Reasons: To allow the request would be contrary to the specific provisions of section 111 and as well as the overall scheme of the Act.

March 25, 2013

Holly Carswell HEADQUARTERS
Large Business Audit Income Tax Rulings
International and Large Business Directorate Directorate
Room 609, 6th Floor, 344 Slater Street Terry Young
Ottawa

2013-047411

Revision of prior years' CCA Claim

We are writing in reply to your email of January 8, 2013, regarding our views on a taxpayer's request dated XXXXXXXXXX, to revise CCA claims of a predecessor corporation for the taxation years ending XXXXXXXXXX. We also acknowledge our telephone conversations (Young / Carswell).

We will not enumerate the specific facts as they are included in your draft memorandum, but we note that the taxpayer wishes to effectively deduct non-capital losses that expired in XXXXXXXXXX or earlier from income for its taxation year ending XXXXXXXXXX. Briefly, if the taxpayer's request is accepted, the restoration of the losses would be accomplished as follows:

• the losses that expired in XXXXXXXXXX or earlier years would be replaced with increased UCC balances;
• the increased UCC balances would be "ground down" and converted into non-capital losses for the taxation year ending XXXXXXXXXX, by the application of subsection 111(5.1); and
• the non-capital losses would be deducted in calculating income for the taxation year ending XXXXXXXXXX, the year they would otherwise expire and the earliest year still open for reassessment pursuant to subsection 152(4).

We have reviewed your draft memorandum and we agree with your conclusion that the request should be denied, as well as with the reasons for the denial. We also offer the following comments in further support of your reasons.

You have distinguished the taxpayer's request from the Federal Court of Appeal decision in Clibetre Exploration Ltd. v. Her Majesty the Queen, 2003 DTC 5073, ("Clibetre"); a decision where the court approved the re-characterization of current expenditures in otherwise statute barred years to CEE. Your basis for distinguishing this decision from the taxpayer's request is the difference between the re-characterization of current expenditures to the CEE pool and reviving a permissive deduction such as CCA. We agree with this distinction.

CEE, like UCC, is calculated at any time as the aggregate of qualifying expenditures less amounts deducted by the taxpayer in computing income before that time (along with other additions and deductions). In Clibetre, the reasoning was that the taxpayer made expenditures in 1980 through 1995 that qualified as CEE, but had misclassified them as general expenses. The Federal Court of Appeal determined that those expenditures were incorrectly included in current expenses and should be included in the taxpayer's calculation of CEE for 1996, because they were CEE made or incurred by the taxpayer before that time.

In the situation at hand, the predecessor corporation had the option of deducting amounts for CCA and chose to do so. There was no error in the taxpayer's calculation that the CRA is being asked to correct.

We are also in agreement with your conclusion that to allow the taxpayer's request would render the restrictions on the application of losses in 111 ineffective. The clear scheme of the Act is that CCA is a permissive deduction that taxpayers may or may not claim. If the taxpayer claims CCA and it results in a non-capital loss, that loss may be carried forward and deducted against income in future years subject to the rules and restrictions in section 111. To amend CCA claims for taxation years to reinstate losses that have already expired is retroactive tax planning. This would be inconsistent with the specific provisions and with the scheme of the Act as a whole.

We trust these comments will be of assistance.

Yours truly,

Terry Young, CA, CPA
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch