5 July 2013 External T.I. 2013-0479161E5 - Capital Loss Adjustment - 152(4)

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 a capital loss for a year that is statute barred can be amended to increase the amount of the capital loss and the capital loss carried forward to a year that is not statute barred?

Position: Yes

Reasons: A net capital loss exists independently of whether or not it is reported in the tax return for the taxation year when it is incurred.

XXXXXXXXXX
2013-047916
G. Godson

July 5, 2013

Dear XXXXXXXXXX:

Re: Application of 111(1)(b) and 152(4)

We are writing in reply to your email of February 20, 2013 requesting clarification of the interaction between paragraph 111(1)(b) and subsection 152(4) of the Income Tax Act (the "Act").

Specifically, you have requested clarification of whether the provisions of subsection 152(4) permit the Minister to adjust a capital loss reported by a taxpayer in a taxation year that is statute barred and, therefore, increase the capital loss carry forward available to be applied to a future taxation year that is not statute barred.

Our Comments

In general, subsection 152(4) of the Act provides that for a particular taxation year, the Minister may, at any time, issue an assessment, reassessment or additional assessment of tax or notify a taxpayer that no tax is payable. However, assessments, reassessments or additional assessments of tax, interest or penalties for a taxation year cannot be issued by the Minister beyond the "normal reassessment period" unless one of the exceptions in subsection 152(4) is applicable. The "normal reassessment period", as defined in subsection 152(3.1), is either three or four years from the date of the initial assessment or notice that no tax is payable.

Subsection 111(8) defines a net capital loss for a taxation year as, generally, the excess of allowable capital losses over taxable capital gains. A net capital loss exists independently of whether or not it is reported in the tax return for the taxation year when it was incurred. A taxpayer may carry back or carry forward any net capital loss as permitted by paragraph 111(1)(b) of the Act.

Accordingly, the Minister may adjust the net capital loss for a taxation year after the normal reassessment period, but cannot adjust the tax payable for that year except as described above. In other words, the Minister may adjust the net capital loss (available for carry forward), but the amount of the capital loss previously not claimed cannot be applied against the capital gains reported for the statute-barred year. Furthermore, the net capital loss would be equal to the net capital loss that would have been available had the allowable capital loss originally been reported correctly.

We note that our comments are based on the assumption that a notice of loss determination pursuant to subsection 152(1.1) has not been issued. If one has been issued, the rules applicable to loss determinations would apply.

We trust these comments will be of assistance.

Yours truly,

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