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.
Dear XXX:
We refer to your letter of September 22 and October 6, 1980 and our letter of January 26, 1981 with respect to the advance income tax ruling issued to XXX.
It is our view that a repayment to XXX by Holdings of all or a portion of the non-interest bearing demand loans referred to in paragraph 6 of our letter of January 26, 1981 could result in a capital gain or a capital loss pursuant to subsection 39(2) of the Act.
We would also point out that the provisions of subparagraph 95(1)(b)(ii) or 95(1)(b)(iv) of the Act would apply to Holdings in determining its foreign accrual property income in respect of XXX for the taxation year of Holdings in which such repayment is made. If XXX would realize a taxable capital gain as the result of a repayment, then Holdings would presumably have an allowable capital loss (subparagraph 95(1)(b)(iv) of the Act). However, XXX could not offset this loss against the taxable capital gain, since there is no provision to deduct negative FAPI.
Should XXX incur an allowable capital loss on a repayment, then Holdings would presumably realize FAPI in the form of a taxable capital gain (subparagraph 95(1)(b)(ii) of the Act). XXX could not, however, offset its allowable capital loss against the FAPI amount, since subparagraph 3(e)(ii) would prevent this.
We trust the above will be of assistance to you.
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© Her Majesty the Queen in Right of Canada, 1981
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© Sa Majesté la Reine du Chef du Canada, 1981
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