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 loss which arose as a result of the deduction of taxable dividends under paragraph 130.1(1)(a) would qualify as a non-capital loss as defined in subsection 111(8).
Position:
Yes, if the reason for the loss in a particular year is because the mortgage investment corporation paid out less taxable dividends than it was able to in a prior year.
Reasons:
While subsection 130.1(1) is not expressly directed against a particular source, the deduction under paragraph 130.1(1)(a) is a deduction taken in computing income from a mortgage investment corporation's business.
5-962696
XXXXXXXXXX J. Leigh
Attention: XXXXXXXXXX
September 5, 1996
Dear Sirs:
Re: Mortgage Investment Corporation Losses
This is in reply to your facsimile of August 8, 1996 concerning the tax treatment of a loss which arose as a result of the deduction of taxable dividends under paragraph 130.1(1)(a) of the Income Tax Act (the "Act").
A mortgage investment corporation is essentially treated as a conduit for income tax purposes. Paragraph 130.1(1)(a) of the Act provides for the flow-through of income of a mortgage investment corporation by allowing the corporation to deduct in computing its income for a taxation year all taxable dividends, other than capital gains dividends, paid by the corporation during the year or within 90 days after the end of the year to the extent that those dividends were not deductible by the corporation in computing its income for the preceding year.
Your query relates to a situation where a mortgage investment corporation realizes a loss in a particular year as a result of paying out taxable dividends of an amount greater than its income for the year. The corporation is able to do this as it would not have distributed as taxable dividends the entire amount of its income earned in a prior year. You have asked whether a loss realized in such circumstances would qualify as a non-capital loss.
The term "non-capital loss" is defined in subsection 111(8) of the Act and generally includes only losses that arise from an office, employment, business or property, allowable business investment loss, and certain amounts deducted or deductible under certain listed provisions. While subsection 130.1(1) of the Act is not expressly directed against any particular source, it is our view that the deduction under paragraph 130.1(1)(a) of the Act is a deduction in computing a mortgage investment corporation's income from business or property for a taxation year. Accordingly, a loss resulting from the deduction of taxable dividends under paragraph 130.1(1)(a) of the Act in the circumstances noted above would qualify as a "non-capital loss" as defined in subsection 111(8) of the Act and may be carried back or carried forward to other taxation years to the extent permitted by paragraph 111(1)(a) of the Act.
While we hope that our comments are of assistance to you, they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.
Yours truly,
Chief
Financial Institutions Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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