17 March 1997 Internal T.I. 9614896 - NET-CAP LOSS - YEAR OF DEATH

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.

		March 17, 1997

	Individual Returns & Payments	HEADQUARTERS
	Processing Directorate	B. Kerr
	T1 Adjustments Section	957-8953
	Attention: Adrian Raghunandan
		961489

Subsection 111(2)

This is in reply to your memorandum of April 28, 1996, requesting our comments on the interpretation of subsection 111(2) of the Income Tax Act (the "Act").

You have stated that according to the CCH Master Tax Guide, "the total net capital losses for all taxation years that can be deducted in the year of death and the immediately preceding year from sources of income other than capital gains will be reduced to the extent of the total of all capital gains exemptions that had been claimed by the deceased individual". There is no indication that the reduction should or could be done twice. However, example 2 on page 197 of the 1996 edition of "Preparing Your Income Tax Returns" suggests that due to "complex ordering problems" there could be "a double counting of the reductions for prior year capital gains exemption" under specific conditions. You have been unable to confirm this interpretation from your review of other reference material and have asked for our comments.

Our Comments

Subsection 111(2) of the Act reads as follows:

"Where a taxpayer dies in a taxation year, for the purpose of computing the taxpayer's taxable income for that year and the immediately preceding taxation year, the following rules apply:

(a)paragraph (1)(b) shall be read as follows:

"(b) the taxpayer's net capital losses for all taxation years not claimed for the purpose of computing the taxpayer's taxable income for any other taxation year;"; and

(b)paragraph (1.1)(b) shall be read as follows:

"(b) the amount, if any, by which

(i) the amount claimed under paragraph (1)(b) in respect of the taxpayer's net capital losses for the particular year

exceeds the total of

(ii) all amounts in respect of the taxpayer's net capital losses that, using the formula in subparagraph (a)(ii), would be required to be claimed under paragraph (1)(b) for the particular year to produce the amount determined under paragraph (a) for the particular year, and

(iii) all amounts each of which is an amount deducted under section 110.6 in computing the taxpayer's taxable income for a taxation year, except to the extent that, where the particular year is the year in which the taxpayer died, the amount, if any, by which the amount determined under subparagraph (i) in respect of the taxpayer for the immediately preceding taxation year exceeds the amount so determined under subparagraph (ii).""

The capital gains deduction is provided for under section 110.6 of the Act. Since the provisions of subsection 111(2) apply for both the taxation year in which the taxpayer died and the immediately preceding taxation year, there would be an amount under modified subparagraph 111(1.1)(b)(iii) in each of those years to reflect any amounts deducted by the taxpayer under section 110.6 of the Act.

The authors of the comments in Preparing Your Income Tax Returns have not provided an explanation of what they mean nor have they cross referenced the calculation to the Act. Therefore we offer no comment. In our view, the CCH Master Tax Guide provides the easier to understand "plain language" comments concerning the general effect of subparagraph 111(1.1)(b)(iii), as modified by subsection 111(2), of the Act.

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