10 April 1996 External T.I. 9528225 - LOSSES DEDUCTED BY NON-RESIDENT

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:

Can a non-resident deduct losses incurred while resident pursuant to paragraph 115(1)(e)?

Position:

Yes

Reasons:

Wording of provision

									5-952822
XXXXXXXXXX							D. Yuen

Attention: XXXXXXXXXX

April 10, 1996

Dear Sirs:

Re: Sections 111 and 115 of the Income Tax Act¹

We are writing in response to your letter of October 20, 1995 wherein you requested an interpretation of whether losses may be deducted under section 111 in the following situation.

Situation

Mr. X was resident in Canada from 1972 until 1992.

On his emigration from Canada, Mr. X had the following unutilized losses under the Act:

Non-capital losses $10,000;

Farm losses 25,000;

Net capital losses 15,000; and

Allowable business investment loss 10,000.

The terms "non-capital loss", "farm loss" and "net capital loss", as used here and subsequently, have the meanings assigned by subsection 111(8). The term "allowable business investment loss", as used here and subsequently, has the meaning assigned by section 38.

The non-capital losses, farm losses and allowable business investment losses relate to activities in Canada while Mr. X was resident in Canada.

The net capital losses are from the disposition of taxable Canadian property which, as used here and subsequently, has the meaning assigned by paragraph 115(1)(b).

On his departure from Canada, Mr. X continued to own taxable Canadian property.

Mr. X is not, and does not intend to become, resident in Canada.

In 1995, Mr. X sold taxable Canadian property and recognized a capital gain for tax purposes of $80,000.

Your Views

Per subsection 2(3), Mr. X will calculate his taxable income in Canada in 1995 according to division D of Part I. Per subparagraph 115(1)(b)(i), Mr. X will report a taxable capital gain of $60,000.

Per paragraph 115(1)(e), Mr. X will be permitted to claim the deductions available under section 111 that can reasonably be considered to relate to activities in Canada as follows:

Taxable capital gain $ 60,000

Non-capital losses (paragraph 111(1)(a)) (20,000)

Net capital losses (paragraph 111(1)(b)) (15,000)

Farm losses (paragraph 111(1)(d)) (25,000)

$ 0

The non-capital losses include the $10,000 allowable business investment loss. Subsection 111(9) will not apply to deny the deduction of the losses since the losses relate to activities in Canada while Mr. X was resident in Canada. The deduction of non-capital losses and farm losses is provided for under paragraph 115(1)(e) since the losses arose from activities carried on in Canada. The deduction for net capital losses is provided for under paragraph 115(1)(e) as the property giving rise to the loss was taxable Canadian property.

Your Question

You have requested confirmation that the losses will be deductible in computing the taxable income of Mr. X in 1995.

Our Comments

The situation described in your letter appears to involve actual completed transactions in respect of a specific taxpayer. Consequently, the taxpayer's local Taxation Services Office is responsible for determining the tax consequences arising from such transactions. However, we can provide the following general comments.

It is our view that a non-resident person may deduct under paragraph 115(1)(e) a deduction permitted by section 111 for losses that may reasonably be applicable to the duties of an office or employment performed in Canada, a business carried on in Canada, or a disposition of taxable Canadian property, notwithstanding that the losses were incurred while the person was a resident of Canada.

The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada and are not binding on Revenue Canada.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

ENDNOTES

¹ All statutory references in this letter are to the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c. 1, as amended.