24 October 1989 Administrative Letter 80296 F - Minimum Tax and Application of Net Capital Losses

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: Minimum Tax and the Application of Net Capital Losses

We are responding to your memorandum of June 5, 1989, concerning the amount deductible as a net capital loss under subparagraph 127.52(1)(i)(ii) of the Income Tax Act (the Act).

24(1)

The calculation on form T691 "Calculation of Minimum Tax", does not permit the taxpayer to adjust the net capital losses applied for the purpose of calculating minimum tax to the extent that those losses occurred before 1986.  Since in the present case the amount of the net capital loss which can be applied arose prior to 1986, the taxpayer was denied any adjustment under subparagraph 127.52(1)(i)(ii) of the Act.  It is your view that this subparagraph of the Act would limit the taxpayer's application of net capital losses for the purpose of Division E.1 to the lessor of;

a)     24(1) the amount which in your view can reasonably be considered to be the amount the taxpayer would have deducted under paragraph 111(1)(b) has paragraph 127.52(1)(d) been applicable in computing that amount, and

b)     24(1) the amount which in your view would otherwise be notionally deductible by the taxpayer had paragraph 11(8)(a) of the Act been computed without reference to any fraction for a taxation year commencing after 1985.

In our view, the amount deductible under paragraph 111(1)(b) for the purpose of Division E.1 of the Act is 24(1) calculated as follows:

Limitation under Clause 127.52(1)(i)(ii)(A) of the Act

To the extent otherwise permitted, it is reasonable to assume that the taxpayer would put himself in the same relative tax position for the purpose of Division E.1 of the Act as he was in for the purpose of Division E of the Act.  Since the adjustments made by subparagraph 127.52(1)(i)(ii) of the Act do not affect the calculation of his pre-1986 capital loss balance for 1987, and the pool is otherwise available, it is our view that the limit imposed by Clause 127.52(1)(i)(ii)(A) of the Act would be 24(1) rather than 24(1) as determined by subsection 111(1.1) of the Act.

Limitation under Clause 127.52(1)(i)(ii)(B)

We agree with your calculation of the net capital loss pool available to the taxpayer of 24(1) for the purpose of Division E.1 of the Act.  However, the amount deductible under paragraph 111(1)(b) for the purpose of Division E.1 of the Act is also limited by subsection 111(1.1) of the Act.  Therefore the limitation imposed by Clause 127.52(1)(i)(ii)(B) of the Act is the lessor of the pool available, 24(1) and the additional limitations of subsection 111(1.1) of the Act for the purpose of Division E.1.

Accordingly, it is our view that a taxpayer in the situation you describe would be able to deduct a net capital loss of 24(1) in computing his adjusted taxable income under Division E.1 of the Act.  We are advising Assessing and Enquiries Directorate that form T691 appears to be incorrect in this regard.

We trust our comments will be of assistance to you.

Yours truly,

M.A. Hiltzfor Director GeneralSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch