19 June 1985 Income Tax Severed Letter 5-7707 - []

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.

XXXX P.K. Tang (613) 995-1787

XXXX

June 19, 1985

Dear Sirs:

Re: Subsections 88(1.1) and 111(5) of the Income Tax Act ("the Act")

This is in reply to your letter of May 24, 1985 wherein you request our view as to whether or not, for purposes of subsections 88(1.1) and 111(5) application, the product of a poultry farm of raising chickens for sale is a similar property to the product of a vegetable farm where vegetables are produced for sale.

Specifically your situation is as follows:

1. Company A, which is owned equally by two unrelated individuals, has carried on a business of farming for a number of years. This business has consisted of raising vegetables and has not been successful. This company has a significant amount of non- capital losses as a result.

2. Company B, which is owned by one of the individuals that owns one half (1/2) of Company A, has carried on a farming business for several years. This business consists of raising poultry (layers and broilers) and has been successful. It is expected this company will have taxable income in future years as a re- sult of the successful operation of the poultry business.

3. Company B will acquire all the outstanding shares of Company A and subsequently winds up this subsidiary into itself.

4. As an alternative to step 3, the business of Company B is transferred to Company A.

You request our confirmation that if the assumption is made that the other requirements of subsection 88(1.1) and/or subsection 111(5) of the Act are met so as to allow a deduction of a non-capital loss would the products of the poultry farm be considered to be products similar to the vegetables raised on the vegetable farm for purposes of these two subsections.

Our Comments:

Under subsection 88(1.1) of the Act, where there has been an acquisition of control of a subsidiary corporation between the end of its loss year and the time of its wind-up by a person or persons who did not control it during its loss year and the parent corporation did not, during the taxation year under consideration, carry on the particular business in which the non-capital loss was incurred by the subsidiary, the parent corporation is not entitled to deduct the loss. Similarly, for purposes of subsection 111(5) of the Act, a corporation cannot deduct from its income for a taxation year a non-capital loss incurred in a preceeding year from carrying on a business if, at the end of the taxation year, the corporation is controlled by a person or persons who did not control the corporation at the end of that preceeding year, and the corporation did not, during the taxation year, carry on the business in which the non-capital loss was sustained. In the situation described, although the products of a poultry farm may not be exactly similar to the products of a vegetable farm we are of the view that the business of a poultry farm and the business of a vegatable farm are the same type of business since both activities fall within the definition of "farming" in, subsection 248(1) of the Act. Therefore, we are of the view that the products of a vegetable farm would be considered similar to those of a poultry farm for the purposes of subsections 88(1.1) and 111(5) of the Act.

In the situation where only the profitable business of Company B is transferred to Company A neither subsection 88(1.1) nor subsection 111(5) would have application since there is no acquisition of control of either Company B or Company A. Under such circumstances, the non-capital loss of Company A incurred prior to the transfer will be deductible in computing its taxable income according to the provisions of paragraph 111(1)(a) of the Act.

Please note that the above represents only a general expression of opinion based on the information provided and is not a formal income tax ruling. It is, hence, not binding on the Department.

Yours truly,

for Director Corporate Rulings Division Legislation Branch