13 September 1994 Internal T.I. 9415047 - MINIMUM TAX

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 a non-capital loss that is comprised of an unused allowable business investment loss can be recognized as a net-capital loss for the purposes of minimum tax.

Position TAKEN:

No

Reasons FOR POSITION TAKEN:

-Meaning of net-capital loss, paragraph 111(8)(a)

-Calculation of adjusted taxable income, clauses 127.52(1)(i)(i)(A) and 127.52(1)(i)(ii)(A).

		September 13, 1994

	Belleville District Office	Head Office
	Audit Division		Rulings Directorate
B. Kerr
	Attention: P. Young	(613) 957-8953
		941504

Minimum Tax and Allowable Business Investment Losses

This is in response to your memorandum of June 7, 1994, concerning the provisions of the Income Tax Act pertaining to adjusted taxable income for the purpose of minimum tax, the definitions of a non-capital loss and an allowable business investment loss.

In your letter you refer to a telephone conversation from XXXXXXXXXX regarding the file of XXXXXXXXXX

The facts as we understand them are as follows:

XXXXXXXXXX

XXXXXXXXXX has stated that had the allowable business investment losses retained their identity as capital losses, that by virtue of clause 127.52(1)(i)(ii)(A), XXXXXXXXXX adjusted taxable income would have been less than the basic exemption for the year.

You have requested that we review these provisions and determine whether the above result is intended or whether it should be brought to the attention of the Department of Finance ("Finance").

Unless otherwise stated all references to statute are references to the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the "Act").

Our Comments

Although you have not stated how the minimum tax was calculated, it appears that it was arrived at by virtue of the combined effect of subparagraph 127.52(1)(d)(i) and clause 127.52(1)(i)(i)(A) in the calculation of the taxpayer's adjusted taxable income for 1992.

By virtue of paragraph 111(8)(b) of the Act, any allowable business investment loss of a taxpayer that is not deducted in the year incurred becomes part of his non-capital loss for that year. Unfortunately, it does not become a net-capital loss until seven years later by virtue of clause 111(8)(a)(ii)(A) of the Act. Consequently, for the purposes of minimum tax it remains a non-capital loss such that in calculating adjusted taxable income the amount used in clause 127.52(1)(i)(i)(A) is limited to the amount actually deducted under paragraph 111(1)(a). The amount referred to in clause 127.52(1)(i)(ii)(A) would not be affected since it is not a net-capital loss. Accordingly, we would agree with you and the taxpayer's representative that the minimum tax is correct under the legislation.

Allowing an allowable business investment loss to be recognized as a net-capital loss, as suggested by XXXXXXXXXX such that clause 127.52(1)(i)(ii)(A) may apply, would require an amendment to the Act which falls under the responsibility of Finance. We have discussed this matter with Finance, however, should XXXXXXXXXX wish to pursue this matter we would suggest that he write to Finance at the following address:

Tax Policy & Legislation Branch
Department of Finance
140 O'Connor Street
L'Esplanade Laurier
17th Floor, East Tower
Ottawa, Ontario
K1A 0G5

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