22 November 1993 Income Tax Severed Letter 9323365 - Non-profit Organization—Terminal Losses

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                           932336
XXXXXXXXXX                                 Glen Thornley
                                           (613) 957-2101

Attention: XXXXXXXXXX

November 22, 1993

Dear Sirs:

Re: Paragraphs 149(10)(b) and (c) and subsection 20(16) of the Act

This is in reply to your faxed letter of August 16, 1993 seeking confirmation of a technical interpretation concerning the interaction of the above-noted provisions of the Income Tax Act (the "Act") to a particular set of facts.

Your fact situation involves an exempt corporation having depreciable property at the time it ceases to be an exempt corporation. The fair market value of the property is less than its cost and its undepreciated capital cost. You request confirmation that the corporation will be able to claim a terminal loss pursuant to subsection 20(16) of the Act at the time of becoming non-exempt and, pursuant to the provisions of 149(10) of the Act, will be able to carry forward the terminal loss and deduct it from net income in a future year.

Written assurances with respect to actual proposed transactions can only be given in the context of an advance income tax ruling pursuant to the guidelines in Information Circular 70-6R2. We do, however, provide the following general comments with respect to subsection 149(10) of the Act.

Our Comments

Subsection 149(10) is applicable to a corporation that ceased to be exempt from Part I tax on its taxable income and, under paragraph 149(10)(a), the corporation's taxation year will be deemed to have ended immediately before it ceases to be exempt.

Under paragraph 149(10)(b), such a corporation is deemed to have disposed of all its property, except Canadian or foreign resource property, immediately before the time that is immediately before the change in status, and reacquired the same property at fair market value. Where a corporation ceases to be tax-exempt and realizes a terminal loss as a consequence of the application of paragraph 149(10)(b), it will be able to claim that amount in a future year only to the extent that it could not be deducted in the year ending at the time of the change of status or as a non-capital loss in the three preceding years as provided in paragraph 149(10)(d).

Paragraph 149(10)(c) provides that where paragraph 149(10)(b) applies and the fair market value of depreciable property is less than its capital cost immediately before the disposition, the original capital cost is preserved and the difference is deemed to have been allowed as capital cost allowance for years prior to the deemed disposition.

We trust our comments will be helpful.

Yours truly,

Roberta Albert for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch