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.
R. B. Day (613) 957-2136
FEB 15 1989
Dear XXXX
We are writing in reply to your letter of November 22, 1988, wherein you requested our views regarding the interpretation of "cumulative net investment loss" ("CNIL") as defined in-subsection 110.6(1) of the Income Tax Act (the "Act").
Our understanding of the hypothetical situation, set out in your letter, is as follows:
A taxpayer has a 1988 taxable capital gain of $10,000 and has not previously used any portion of his capital gains exemption.
During 1988, the taxpayer had net rental income of NIL computed as follows:
Gross rental income $50,000
Expenses:
Maintenance $ 5,000
Interest 40,000
Depreciation - 5,000 50,000
Net rental income $ -
With respect to this hypothetical situation you have requested our opinion as to which of the five following computations of CNIL would be valid relative to the definition of "investment expense" and "investment income" in subsection 110.6(1) of the Act.
(1) (2) (3) (4) (5)
Investment expenses $50,000 $40,000 $50,000 $40,000 paragraph (a)
Less:
Investment income - 50,000 50,000
paragraph (d)
CNIL $ , $40,000 $ - $50,000 $(10,000)
Our Comments
It is our opinion that alternative 3 would reflect the proper calculation of CNIL in this situation. The reasons for our opinion are as follows:
Definition of Investment Expense
Paragraph (a) of the definition provides, in part, for the inclusion of all amounts deducted by an individual in computing income for the year other than amounts deducted in computing losses from the renting or leasing of rental property under paragraph (e). Since, in your example, the rental property loss is computed under paragraph (e), the expenses deducted in arriving at this amount are not included in paragraph (a). As a result, the investment expense for CNIL purposes is NIL.
Definition of Investment Income
Paragraph (a) of this definition provides, in part, for the inclusion of all amounts included by an individual in computing property income for the year other than amounts included in computing income from the renting or leasing of property owned by him under paragraph (d). Since, in your example, the rental property income is computed under paragraph (d), the rental income included in computing this amount is not included in paragraph (a). As a result, the investment income for CNIL purposes is also a NIL amount.
It follows therefrom that there is no CNIL amount in this hypothetical situation.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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