17 April 1990 External T.I. 74740 F - Acquisition of Loss Company

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.

SUBJECT: Acquisition of Loss Company

We are writing in response to your request of February 20, 1990 for comments regarding the application of subsections 111(5) and 87(2.1) of the Income Tax Act (the "Act") in the following situation:

Our understanding of the facts is as follows:

1.

2.     

3.     24(1)

4.     

5.     

6.     

7.     24(1)

It is your view that 24(1)

Comments

1.     Paragraph 111(5)(a) limits the deductibility of non-capital losses (the "losses") where control of the corporation has been acquired.  The provision applies to losses incurred in taxation years ending prior to the year in which control is acquired (the "control year").  Thus paragraph 111(5)(a) is not applicable to losses incurred in the control year.

     The information provided above concerning the arrangement with the 24(1)

     Paragraph 87(2)(a) will deem 24(1) to have a year end immediately before the amalgamation.  However, since this year end occurs after the acquisition of control by 24(1) the provisions of paragraph 111(5)(a) are not applicable to restrict the losses realized on such sale (since they would be incurred in the control year).

2.     It is also our view, however, that consideration should be given to the application of the provisions of section 79 to the transactions 24(1). If section 79 was found applicable to the debt the provisions of subsection 80(1) would not be applied thereto pursuant to paragraph 80(1)(e)).

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