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.
Principal Issues:
Whether an ABIL from a seventh prior year (pre-1986) would retain its characteristic as a pre-1986 capital loss balance.
If not, can it be retroactively treated as a capital loss rather than, more specifically, a business investment loss.
Position TAKEN:
The ABIL does not retain its character as a pre-1986 capital loss.
Whether a particular disposition results in an ABIL is a question of fact and, if it is, that fact cannot be ignored.
Reasons FOR POSITION TAKEN:
Tracing the definition of "pre-1986 capital loss balance" through to its core reveals that an ABIL is excluded from the definition of "net capital loss" which forms the basis for the pre-1986 capital loss balance calculation.
Business investment losses and ABILs are described in 39(1)(c) and 38(c) so it is a question of fact as a loss is an ABIL or not. Everything will flow from that.
933543
XXXXXXXXXX J.A. Szeszycki
April 20, 1994
Dear Sir:
Re: Pre-1986 Capital Loss Balance
This is in reply to your letter of November 24, 1993, requesting our views as to whether a capital loss arising out of a pre-1986 allowable business investment loss ("ABIL") can retain its character as a pre-1986 capital loss balance in 1992. We apologize for the delay encountered in providing a response. In the following comments, unless otherwise stated, all statute references are to the Income Tax Act 1970-71-72, c. 63 as amended, consolidated to June 10, 1993 (the "Act").
The "pre-1986 capital loss balance" is a term that is defined in paragraph 111(8)(b.2) of the Act. The cornerstone of its calculation is found in clause (i)(A) with the reference to the net capital loss for each taxation year ending before 1985. The term "net capital loss" is also a defined term (paragraph 111(8)(a) of the Act). Subparagraph (i) of this definition requires the determination of amounts under paragraphs 3(b)(i) and (ii) of the Act. Subparagraph 3(b)(ii) reads as follows:
"(ii) the amount, if any, by which his allowable capital losses for the year from dispositions of property other than listed personal property exceed his allowable business investment losses for the year,"
While a business investment loss is a capital loss in nature, it is clear from the wording of the above subparagraph that an ABIL is effectively removed in the computation of the subparagraph 3(b)(ii) amount. Consequently, the defined term "net capital loss" in respect of a pre-1986 taxation year does not include an ABIL for that year and, in turn, the defined term "pre-1986 capital loss balance" does not include an ABIL incurred in the pre-1986 taxation year. As provided in subparagraph 111(8)(b)(ii) of the Act, an ABIL becomes part of the net capital loss only in the eighth year after the taxation year in which it was incurred.
The "Window on Canadian Tax" references cited in your letter can be distinguished from the situation you present in that they each deal with two distinct loss amounts with different characteristics (capital loss and non-capital loss) and the options available for claiming one rather than the other.
We hope our comments will be of assistance to you .
P.D. Fuoco
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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