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.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: S. 111(1)(b) Ordering of Applied Non-capital Losses
This is in reply to your letter of March 5, 1993 requesting that we confirm your understanding of "Revenue Canada's policy with respect to the application of non-capital losses where in a particular year a corporate taxpayer has incurred non-capital losses from carrying on a business as well as from other sources."
In particular, you presented a hypothetical scenario, whereby a corporation whose control is acquired during the 1993 fiscal year has both business losses and property losses incurred in its 1992 taxation year. As you have pointed out, provided the corporation continues to carry on the loss business, the business loss will be available to offset against income from the same or similar business. The property losses would simply expire. You requested that we confirm that the taxpayer may use the property losses against taxable income earned in the taxation period ending on the date control changes, that is, preceding the acquisition of control.
Although you have asked for a technical interpretation, the situation presented appears to be an actual fact situation. Should this situation involve a proposed transaction, you may wish to submit all relevant facts and proposed transactions for a binding advance income tax ruling. However, should this situation involve actual taxpayers and completed transactions you may wish to submit all relevant facts and documentation (including company names and identification numbers) to the appropriate District Office for their comments.
We are however prepared to provide some general comments.
Our Comments:
Under subsection 249(4) where control of a corporation has been acquired, the corporation's year end will be deemed to have ended immediately before the acquisition date and a new taxation year will be deemed to have commenced at that time.
Subsection 111(5) restricts the carryover of non capital losses or farm losses to those which are derived from the carrying on of a business when there has been an acquisition of control of a corporation. As a result, unutilized allowable business investment losses and losses from property expire after the deemed taxation year. Non capital losses arising before this deemed year end can be applied without restriction against taxable income realized in the year ending immediately prior to the acquisiton date.
We trust these comments will be of assistance to you.
Yours truly,
R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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