28 February 1991 Ministerial Correspondence 903404 F - 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: Minimum Tax - Subsection 127-52(1)

This is in response to your memo dated November 27, 1990, requesting our assistance with respect to the determination of the adjusted capital losses of  other years for minimum tax purposes.

Subparagraph 127.52(1)(i)(ii) of the Act sets out the calculation of net capital losses for minimum tax purposes.  The amount deductible would be the lesser of:

a)        the amount the taxpayer would have deducted under paragraph 111(1)(b) if paragraph 127.52(1)(d) had been applicable in calculating that amount, and

b)        the amount that would have been deductible if paragraph 127.52(1)(d) had been applicable for any taxation year commencing after 1985 in calculating the  amount in paragraph 111(8)(a).

We agree with your conclusion that "the amount that can reasonably be considered to be the amount he would have deducted" would be net of the capital gains exemption claimed for regular tax purposes.

For regular tax purposes, the definition of the Annual Gains Limit in subsection 110.6(1) restricts the capital gains deduction to the excess of net taxable gains over net capital losses of other years claimed under 111(1)(b).  Consequently, the aggregate of net capital losses of other years claimed plus the capital gains deduction taken in the current year could never exceed the current year's net taxable gains.   Subsection 127.52(h) specifies that the capital gains exemption is deductible for adjusted taxable income purposes, but only to the extent it was claimed for regular tax purposes. Therefore as the capital gains exemption is determined for minimum tax purposes by the amount that was claimed for regular tax purposes, it follows that the total adjusted deduction for capital losses of other years and capital gains deduction the taxpayer is entitled to should not exceed the adjusted capital gains. 21(1)(b)

You also asked that we confirm that the non-deductible portion of capital losses should be added(?) to the taxable income for minimum tax purposes even where there is no claim for net capital losses for other years on the return.   We do not agree with this statement.  Paragraph 127.52(1)(d) provides that adjusted taxable income should be calculated on the assumption that sections 38 and 41 were read without the references to the fraction set out therein. However just as in the calculation of regular tax, under subsection 3(b) of the Act, only non-negative fractions of capital gains net of capital losses get added to income, the same is true in calculating adjusted taxable income for minimum tax purposes. The non-deductible excess of a fraction of capital losses over capital gains is added to the net capital loss pool which is available for carryover to another year under subsection 111(1)(b). Subparagraph 127.52(i)(ii) deals with net capital loss claims for minimum tax purposes.

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch