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: - Would denied capital loss be added to the adjusted cost base of a property under 53(1)(f.1)?
Position TAKEN: - Our general position regarding the application of paragraph 53(1)(f.1) was discussed in our response. The Taxpayer requested comments on a completed set of transactions.
Reasons FOR POSITION TAKEN: n/a
941639
XXXXXXXXXX M.P. Sarazin
Attention: XXXXXXXXXX
July 28, 1994
Dear Sir:
Re: Paragraph 53(1)(f.1) of the Income Tax Act (the "Act")
This is in reply to your letter dated June 17, 1994 wherein you requested our comments with regards to the application of paragraph 53(1)(f.1) of the Act in the following situation.
Unless otherwise stated all references to a statute are to the Income Tax Act S.C. 1970-71-72, c.63, as amended, consolidated to June 10, 1993.
Facts
A Co., B Co. and C Co. are taxable Canadian Corporations within the meaning assigned to that term by paragraph 89(1)(i) of the Act.
B Co. owned a 90% undivided interest in a non-depreciable capital asset (the "Asset") and the adjusted cost base of its interest was $90,000. C Co. owned the remaining 10% undivided interest in the Asset and the adjusted cost base of its interest was $10,000. Adjusted cost base has the meaning assigned by paragraph 54(a) of the Act.
In July of 1987, the Asset had a fair market value of $50,000.
B Co. transferred its 90% undivided interest in the Asset to A Co. in satisfaction of a $45,000 debt owed by B Co. to A Co. and C Co. transferred its 10% undivided interest in the Asset to A Co. in satisfaction of a $5,000 debt owed by C Co. to A Co.
At the time of the transfers (the "1987 Transfers"), the issued and outstanding shares of A Co. and B Co. were held by several unrelated entities with no single shareholder holding an interest greater than 40%. Each particular shareholder owned the same interest in both A Co. and B Co. In addition, B Co. owned all of the issued and outstanding shares of C Co.
Neither B Co. nor C Co. has ever claimed a deduction for a capital loss arising from the 1987 Transfers or requested a loss determination in respect of its 1987 taxation year.
You would like our opinion as to whether or not paragraph 53(1)(f.1) of the Act would apply to increase the adjusted cost base of the Asset to A Co. by the amount of the capital loss realized by each of B Co. and C Co. as a result of the 1987 Transfer which was deemed to be nil pursuant to either paragraph 40(2)(e) or paragraph 85(4)(a) of the Act.
It appears that your request for an opinion involves both specific taxpayers and completed transactions. Since the responsibility for determining the tax consequences arising from completed transactions rests with the district taxation offices, the appropriate district taxation office may, upon disclosure of all the relevant facts, be able to assist you in clarifying the tax consequences pertaining thereto.
Although we cannot comment directly on your situation, we are able to provide you with the following general comments on the application of paragraph 53(1)(f.1) of the Act to circumstances similar to the one described by you.
Where a taxable Canadian corporation ("Sellco") has realized a capital loss on a disposition of capital property (other than depreciable property of a prescribed class) to another taxable Canadian corporation ("Purchaseco") and Sellco's capital loss is deemed to be nil pursuant to either paragraph 40(2)(e) or paragraph 85(4)(a) of the Act then, provided that the provisions of paragraph 85(4)(b) of the Act do not apply with respect to the disposition because Sellco does not own any shares in the capital stock of Purchaseco, the amount that would otherwise have been Sellco's capital loss from the disposition shall be added to Purchaseco's adjusted cost base of the property pursuant to paragraph 53(1)(f.1) of the Act.
If Sellco and Purchaseco are controlled, directly or indirectly in any manner whatever (i.e. de facto control), by the same person or group of persons and Sellco realizes a capital loss on the disposition of the capital property to Purchaseco, the provisions of paragraph 85(4)(a) of the Act would apply to deem Sellco's capital loss to be nil.
In a situation involving two corporations, subparagraph 251(2)(c)(i) deems two corporations to be related persons if they are controlled by the same person or group of persons. Generally, where the persons are not related, two or more persons will be considered to be a group which controls a corporation where there is evidence that they have a common link or interest or that they act together to control the corporation. The Department's general views regarding the concepts of "control", group of persons" and "acting in concert" are provided in paragraphs 13 to 19 of Interpretation Bulletin IT-64R3, paragraphs 20 to 22 of IT-64R3 and paragraph 12 of IT-419, respectively. In addition, we would refer you to IT-64R2 and the Special Release to that bulletin dated March 9, 1992 which would apply to the determination of control of a corporation for transactions undertaken prior to 1990. In any case, the determination of whether two or more corporations are controlled by a group of persons can only be determined subsequent to a review of all of the facts in each particular situation.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1994
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1994
Email this Content