3 January 1992 Internal T.I. 9133397 F - Capital Dividend Account

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.

January 3, 1992

T2 and T3 Programs DivisionBusiness and GeneralW.A. Mizuik      Division ChiefT3 Programs Section     

Computation of Capital Dividend Account

This is in reply to your memorandum of December 2, 1991 requesting our opinion on the interpretation of paragraph 89(1)(b) of the Income Tax Act with respect to allowable business investment losses.

It is your understanding, due to the words in sub-clause 89(1)(b)(i)(A)(I) that read (in respect of the timing of the CDA calculation) "and ending immediately before the particular time" that an ABIL arising from a deemed disposition resulting from the application of subsection 50(1) is not included in the CDA computation until the following taxation year.  By way of example you have Corporation X with a December 31 year-end paying a capital dividend out of its CDA account on September 30, 1990.  Corporation X has an ABIL arising from a disposition on June 30, 1990 of an arm's length note.  It also has an ABIL arising from a deemed disposition, on December 31, 1990, of shares of Corporation Y which became bankrupt on August 15, 1990.

It is your view that in your example the second ABIL is not included in the CDA calculation precipitated by the payment of the aforementioned dividend.  We agree with this view because on September 30,1990, although Corporation Y is bankrupt, there has not been a disposition (actual or deemed) by Corporation X of its shares in Corporation Y to precipitate a loss.

We trust that this is the information you require.

E. Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch