13 December 1995 External T.I. 9432625 - BLOCK AVERAGING - FARMERS

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 incurred in a taxation year subsequent to the averaging period can be carried back to a taxation year in the averaging period.

Position:

Yes subject to section 111 and 119(1)(a), however, this will also result in a reassessment to the year of averaging in that the amounts referred to in paragraph 119(2)(a) would decrease, and as a result the taxpayer may also wish to revoke the election.

Reasons:

The restriction on the deduction of losses in paragraph 119(1)(a) in respect of the recalculation of income in the years in the averaging period is for the purpose of determining the tax payable in the year of averaging.

							December 13, 1995

J. Nordin, Section Chief		HEADQUARTERS
	Appeals & Referrals Division	B. Kerr
	Appeals Branch				957-8953
	Attention:  P. Porter
							943262

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Non-capital Losses Carry Back to Years of Averaging

This is in reply to your request of December 9, 1994, for our comments concerning the carry back of a non-capital loss incurred in 1992 to the 1989 and 1990 taxation years. We understand that for the 1991 taxation year (the "year of averaging"), the taxpayers elected to block average their income for the 1987-91 taxation years. We apologize for the delay in our response which was the result of a dearth of background material on the provision.

You indicate that TOM(19) and the Farmer's Tax guide state that losses incurred after the block averaging year cannot be carried back to the years of block averaging. Due to this position, Assessing did not grant the taxpayer's request to carryback the 1992 non-capital loss.

As stated in our earlier conversation (Kerr/Ho), we agree with your views that sections 111 and 119 of the Income Tax Act (the "Act") do not contain any provisions that would prevent the taxpayer's from carrying back the 1992 non-capital loss to the 1989 and 1990 taxation years. As the rules in subsection 119(1) of the Act are for the purposes of determining the tax payable in the year of averaging, the restriction on losses in paragraph (a) thereof is for that purpose only. This position is similar to that in respect of other notional calculations.

Allowing the taxpayer to carryback the losses, however, will also result in a decrease to the amount referred to in paragraph 119(2)(a) of the Act. It should be noted that the restriction on losses in paragraph 119(1)(a) of the Act still applies for the purposes of determining the tax payable in the year of averaging. The result is that each of the 1989, 1990 and 1991 tax returns may have to be reassessed and the taxpayers may wish to revoke the election under the provisions of subsection 119(5) of the Act.

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

cc. Carolyn Ritchie