17 December 1996 Internal T.I. 9633196 - AMT ADJ RQRD IN A LOSS YR & YR OF APPLIC OF THAT LOSS

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:

minimum tax implications on both a loss year and the year to which the loss is applied

Position:

when an individual's loss from a business or property causes the individual to have a non-capital loss for the year and that loss is deemed to be nil for minimum tax purposes, the individual only needs to add back that portion of the loss which was used to reduce taxable income to nil for that year in calculating the AMT liability for that year (see line 35 of T691 REV 95 or line 33 of T691 Rev 96). When calculating the revised AMT liability for the year in which the loss is applied, the non-capital loss is recomputed as if that particular loss was nil (according to the amt assmptions) so that a minimum tax liability for the year of the loss application may also arise

Reasons:

proposed 127.52(1)(c.1) deems a loss from a limited partnership to be nil and 127.52(1)(i)(i)(B)(II) requires the resulting non-capital loss incurred after 1994 to be recomputed as if the rules in 127.52(1)(c.1) applied in calculating the amount of that non-capital loss

		December 17, 1996

	Client Services Directorate		Headquarters
	Individual Publications Section	A. Humenuk
	René Tapp, Acting Manager		957-8953
							963319

Alternative Minimum Tax and the Application of Losses

We are replying to your memorandum of October 2, 1996, concerning the questions raised by XXXXXXXXXX in his memorandum dated August 20, 1996.

He describes a situation in which an individual incurs a $XXXXXXXXXX business loss in 1995 in respect of his interest in a limited partnership that invests in XXXXXXXXXX. The loss from the limited partnership in respect of XXXXXXXXXX, after considering the application of the at-risk rules in subsection 96(2.2) of the Act, includes a deduction for capital cost allowance (CCA) of $XXXXXXXXXX. Because his income from other sources is only $XXXXXXXXXX, the individual has a $XXXXXXXXXX non-capital loss which is applied to his 1992 taxation year. In his analysis, the amount of the loss is added back twice for minimum tax purposes, once in 1995 and again in 1992. He asks for clarification of the law and of how the form, T691 "Calculation of Minimum Tax," is to be completed.

In determining whether alternate minimum tax applies in a particular taxation year, an individual's taxable income for the year is recomputed on the basis of the assumptions in paragraphs 127.52(1)(a) to (j) of the Act. Under the assumption in paragraph 127.52(1)(c) of the Act, the amount of CCA deductible under paragraph 20(1)(a) by an individual in respect of XXXXXXXXXX owned by that individual or by a partnership of which the individual is a member, cannot exceed the total income less the total losses from renting or leasing XXXXXXXXXX, calculated without reference to CCA. Under proposed paragraph 127.52(1)(c.1) of the Act, an additional assumption is made for 1995 and subsequent taxation years that any loss from a limited partnership is nil, with the result that such losses are not used in the calculation of the CCA limitation for minimum tax purposes.

In the example given, the individual's 1995 loss from the limited partnership is considered to be nil for minimum tax purposes by reason of proposed paragraph 127.52(1)(c.1) of the Act. If the amendments are not enacted however, the individual's 1995 loss from the limited partnership would still be nil for minimum tax purposes, by reason of paragraph 127.52(1)(c) of the Act. As a result, the taxpayer's adjusted taxable income under subsection 127.52(1) of the Act is $XXXXXXXXXX. In completing form T691, XXXXXXXXXX appears to have missed the fact that the "additional current year-loss available" of $XXXXXXXXXX is added back on line 35 of the form.

In computing the individual's adjusted taxable income in respect of 1992 after the application of the loss, paragraph 127.52(1)(i) requires any non-capital loss applied to be calculated as if the amount deductible were the lesser of the actual amount deducted and the amount that would be deductible if the assumptions in paragraphs 127.52(1)(b), (c) and (e) (or under the proposed amendments, paragraphs 127.52(1)(b) to (c.3),(e) and (e.1) of the Act) were applicable in computing the individual's non-capital loss. As a result, although the taxpayer applied a non-capital loss of XXXXXXXXXX to reduce taxable income for 1992 in the example given, the amount of the non-capital loss available to be applied for minimum tax purposes is nil. Therefore, the amount of the adjustment to tax payable as a result of the application of the loss would be made to reflect the 1992 minimum tax liability. The amount of any minimum tax carry-over so generated could then be applied to any of the following 7 taxation years.

John F. Oulton
Section Chief
Business, Property & Personal Section
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
c.c. Jack Szeszycki, Individual Returns and
Payments Processing Division