24 October 1989 Income Tax Severed Letter 80296A F - T691 - Calculation of Minimum Tax

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:  T691 "Calculation of Minimum Tax"

We are writing to advise you of an apparent error noted on the above mentioned form in respect of the adjustment permitted under subparagraph 127.52(1)(i)(ii) of the Act for the deduction of net capital losses of other years.

The explanatory note to line 25 of T691 Rev.  88 indicates that only post-1985 net capital losses actually claimed for regular tax purposes are adjusted for the propose of minimum tax.  In our view, this is incorrect as illustrated by the example referred to us by Appeals Division (see documentation attached).

24(1)

It is our view that subparagraph 127.52(1)(i)(ii) of the Act would permit the taxpayer to adjust the net capita loss for the purpose of minimum tax to 24(1) as explained below.

Subparagraph 127.52(1)(i)(ii) of the Act imposes two limitations on the amount deductible as a net capital loss for the purpose of calculating minimum tax.  The first limitation refers to the amount that can reasonably be considered to be the amount he would have deducted under paragraph 11(1)(b) had paragraph 127.52(1)(d) been applicable in computing the amount therein.  In our view, it is reasonable to assume that the taxpayer would have deducted the amount required to place himself in the same relative tax position with respect to capital gains to the extent that he was able to do so.  (i.e. 24(1)  in the example cited, as limited by subsection 111(1.1) of the Act)..

The second limitation adjusts the total pool of capital losses available to deducted but only i respect of post-1985 capital losses.  This adjusted pool will consist of unapplied pre-1986 capital losses computed in the unusual manner plus the unapplied post-1985 capital losses computed without reference to the fraction set out in section 38 and 41 of the Act.  In our example, the pool of net capital losses deductible for minimum tax purposes would be 24(1).  Therefore the limitation imposed by Clause 127.52(1)(i)(ii)(B) of the Act is the lessor of the pool available, and the limitation of subsection 111(1.1) of the Act 24(1)  for the purpose of Decision E.1 of the Act.

Accordingly it would appear that the form T691 should be amended to allow a taxpayer to claim additional net capital losses otherwise available to the extent permitted by subparagraph 127.52(1)(i)(ii) of the Act.

We trust our comments will be of assistance to you.

B.W. DathDirectorBusiness and General DecisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch