22 August 1994 External T.I. 9411105 - CNIL

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 for the 1989, 1990 and 1991 taxation years a taxpayer can claim the taxable capital gains which are ineligible for the exemption as investment income which reduces the CNIL account.

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

Amendment in 1993 to definitions of "investment income", "investment expense" and "annual gains limit" at 110.6(1) applicable for 1992 and subsequent years only.

M. Shea-DesRosiers
XXXXXXXXXX		5-941110

August 22, 1994

Dear Madam:

Re: Cumulative Net Investment Loss ("CNIL")

This is in reply to your letter of April 12, 1994, concerning the above-mentioned subject. We apologize for the delay in replying to your letter. All references to statute are to the Income Tax Act S.C. 1970-71-72, c. 63 as amended consolidated to June 10, 1993 (the "Act").

In our telephone conversation (XXXXXXXXXX/Shea-DesRosiers) of July 27, 1994, you stated that you wanted to know why you could, on Form 936E for the 1992 and 1993 taxation years, claim the taxable capital gains which are not eligible for the capital gains deduction as investment income which reduces the CNIL account, but were not allowed to do the same for the 1989, 1990 and 1991 taxation years.

The change is due to an amendment made in 1993 to the definitions of "investment income", "annual gains limit", and "investment expense" to be found at paragraph 110.6(1)(f) of the Act applicable for 1992 and following years. The amendment to the definition of "investment income" ensures that taxable capital gains realized in a taxation year that are not eligible for the exemption will nonetheless serve to reduce the individual's CNIL to the extent that such gains are not offset by net capital losses of other years deducted in the year. An example of net capital gains ineligible for the exemption are those realized on the disposition of non-qualifying real property after February 29, 1992.

The offsetting side of investment income is investment expense. For 1992 and subsequent years, the amount of net capital losses of other years used to reduce any taxable capital gains that are not eligible for the capital gains deduction becomes an investment expense. Such amount serves to increase the CNIL account.

Although the $100,000 lifetime capital gains exemption has been eliminated, the CNIL provisions under the Act continue to exist. It is to be noted that the $500,000 lifetime capital gains exemption for small business shares and farm property remain and with it the CNIL provisions.

Since you are of the opinion that the CNIL provision should have been eliminated with the elimination of the $100,000 lifetime capital gains exemption, you may wish to write to the Department of Finance which is responsible for matters affecting tax policy. Our Department is only responsible for the administration of the Act.

The fairness legislation to which your refer to in your letter does not apply to a situation as the one described above.

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch