29 August 1989 Ruling 89M08021 F - Allowable Capital Losses and Form T1A

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:  Form T1A

This is in reply to your memorandum of June 28, 1989.

Our review of form T1A was based on the provisions of the Income Tax Act taking into account the proposed amendments in Bill C-28 (first reading, June 20, 1989).  Unless otherwise states the references to sections, subsections, etc., are to the Income Tax Act.  We have ignored grammatical and typographical errors, language style and layout, unless they are believed to clearly result in incorrect or misleading information being given out to taxpayers.  Title references of departmental publications, other than interpretation bulletins and information circulars, have not been verified.

Our comments are as follows:

AREA 1

1.     Note 3 incorrectly states that income exempted by treaty and employer's share of deferred profit sharing plans reduce income and increase the loss from the sources to which they relate.  As such amount s are deducted, pursuant to paragraphs 110(1)(f) and 110(1)(d.3), respectively, from the net income computed under section 3, which is an indistinct aggregate amount, they logically cannot be deductions in computing income form a particular source which a component of the mentioned aggregate amount.  Moreover, we are unable to envisage a situation where the amounts referred to in paragraphs 110(1)(f) and 110(1)(d.3) could be deducted without the authority granted by the mentioned paragraphs, a further indication that the said amounts do not pertain to a particular source of income.

AREA III

2. (a)     The terminology used gives rise to some confusion, particularly when the references to "1989 allowable capital losses" in Notes 1 and 2 and to "allowable capital losses for 1989" in line (N) are considered together.  The 1989 allowable capital losses (ACL) mentioned in Note 1 appear to be intended as a reference to the net capital loss, computed under paragraph 111(8)(a), arising in 1989.

     On the other hand, the reference to 1989 ACL in Note 2 has a double meaning.  First, Note 2 appears to state that ACL's as opposed to net capital losses (as defined in paragraph 111(8)(a)), are offset against the taxable capital gains (TCG) and taxable net gains arising in the same year.  Except for the imprecise reference to TCG (it should be the paragraph 3(b)(i) amount), this could be a correct statement.  Second, Note 2, also appears to say that the 1989 net capital loss (paragraph 111(8)(a)) as opposed to ACL, is applied only against the paragraph 3(b) amount (essentially, the net TCG) in the carry-over period.  While both meanings could be correct, Note 2 appears intended only as a reference to the second mentioned meaning.

     Finally, the Line (N) expression is intended as a reference to the excess to the 1989 ACL's over 1989 net TCG's (or more precisely, the excess of the amount determined under paragraph 3(b)(ii) over that determined under paragraph 3(b)(i) which is calculated in Schedule 3 of T1 return.  Such excess, however, is not the net capital loss computed under paragraph 111(8)(a) because it does not take into account the undeducted allowable business investment loss for the seventh preceding year.

   (b)      In addition, as regards Line (N), the reference to Schedule 3 could be more precise by indicating the specific line.  In fact, a reader may be unsure as to whether to use the line 540 amount or the amount allowable in capital loss, terminology only used in line 540 of Schedule 3.

3.     The layout of Line (N), (T),and (U) incorrectly suggests that the line (U) amount is the net of the line (N) and (T) amounts.

AREA IV

4.     We suggest adding a note stating that a restricted farm loss can only be deducted from income from farming, which incidentally, does not include income form fishing.

A.G. Cockell, DirectorTechnical Interpretations DivisionLegislative and Intergovernmental Affairs Branch