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.
Canadian Tax Foundation
1996 Annual Conference
Revenue Canada Forum
November 27, 1996
Loss Consolidation within a Corporate Group - Related or Affiliated?
The Explanatory Notes to Draft Legislation and Regulations Relating to Income Tax Reform issued by the Minister of Finance in June 1988 indicated that transactions that are designed to transfer the unused tax losses and other deductions of one Canadian corporation to a related Canadian corporation are ordinarily in accordance with the scheme of the Act read as a whole and therefore would not usually result in a misuse or abuse for purposes of subsection 245(4) of the Act. Revenue Canada has followed that approach when considering the application of section 245 to such transactions - see, for example, examples 8 and 9 of Information Circular 88-2. The view that such transactions do not result in an abuse, having regard to the provisions of the Act read as a whole, is based on the fact that specific provisions of the Act, such as subsections 69(11) and 111(4) to (5.4), restrict the claiming of losses, deductions and other amounts by unrelated parties.
The Notice of Ways and Means Motion tabled on June 20, 1996 (and retabled on November 20,1996) proposes to amend subsection 69(11) to deny rollover treatment on certain transfers to persons with whom the transferor is not affiliated, rather than related as under the existing law. We have been asked whether the proposed amendment to subsection 69(11) affects our position concerning loss consolidation within a corporate group.
In our view, it does. We consider the proposed amendment to represent a change to the scheme of the Act relating to the ability to transfer losses between corporations. Accordingly, a series of transactions that results in the transfer of the benefit of the losses, deductions or other amounts from one corporation to a corporation with which it is not affiliated will generally be considered to result in an abuse having regard to the provisions of the Act read as a whole within the meaning of subsection 245(4). As the amendment to subsection 69(11) is proposed to be generally effective with respect to series of transactions that begin after April 26, 1995, the change to our position will be effective as of that time, if the amendment to subsection 69(11) is enacted as proposed. The Department of Finance concurs with our position.
It should be noted that many loss transfers will be unaffected by the change, since many corporations that are related will also be affiliated persons under proposed section 251.1. An example of corporations that would be related but not affiliated would be one corporation that is controlled by an individual and another corporation that is controlled by the individual's child or sibling.
File 963743
Mark Symes
November 27, 1996
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