Principal Issues: Whether subsections 161(1) and (7) of the Act apply, such that interest is applicable where there is a substitution of losses for a particular taxation year that does not result in a change in tax payable.
Position: Yes. It is the longstanding administrative position of the CRA to not assess interest when there is a substitution of losses for a particular taxation year that does not result in a change in tax payable.
Reasons: Generally, subsections 161(1) and (7) apply such that where a loss carry forward has been applied to a taxation year to reduce tax payable to nil, and is later substituted with a loss carry back, the calculation of interest would result in an assessment of interest from the balance due date of the taxation year to which the loss is applied, until 30 days after the date the subsequent taxation year’s return (the year of the loss) was filed. Nevertheless, the CRA has historically taken the administrative position to not assess interest in these particular loss substitution situations.