3 October 1997 External T.I. 9640575 - LOSS DEDUCTIONS FOR PART-TIME RESIDENTS

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 an allowable capital loss incurred in the paragraph 114(b) period (i.e. non-resident period) can be applied back to offset a taxable capital gain realized in the paragraph 114(a) period (i.e. resident period)?

Position:

No.

Reasons:

Because, even though the calculations for the paragraph 114(a) and 114(b) periods are made "as though" those periods were separate taxation years, neither of those periods is a "taxation year" - the rules in subsection 111(1) provide only for the deduction, in a year of loss application, of a carried-over loss from a loss year.

964057
XXXXXXXXXX Jim Wilson

Attention: XXXXXXXXXX

October 3, 1997

Dear Sirs:

Re: Deductibility of Losses of a Part-Year Resident

This is in reply to your letter of November 26, 1996 in which you requested our comments with respect to the interpretation of section 114 of the Income Tax Act (the "Act"). You have described a situation that involves transactions that may be affected by the proposed amendments to subsection 128.1(4) of the Act described in the Notice of Ways and Means Motion released by the Department of Finance on October 2, 1996. Since no actual draft legislation has been introduced with respect to that Notice of Ways and Means Motion we are unable to comment on your specific query. However, since the crux of your enquiry pertains to a situation where an individual became a non-resident of Canada in 1996, realized a taxable capital gain in the paragraph 114(a) period ("resident period") and then realized an allowable capital loss on a disposition of taxable Canadian property in the paragraph 114(b) period ("non-resident period"), we can provide some general comments. Specifically, you have asked whether the allowable capital loss from the non-resident period can be carried-back in any way to offset the taxable capital gain that arose in the resident period. You also wish to know whether our answer would be any different if the allowable capital loss was incurred in 1997.

You will note that Interpretation Bulletin IT-262R2 (the "bulletin") sets out the Department's position with respect to the questions you have raised. Paragraph 24 of the bulletin reads in part as follows:

"..... Note also that an unused loss from the paragraph 114(b) period cannot be deducted in the paragraph 114(a) period. This is because, even though the calculations for the paragraph 114(a) and 114(b) periods are made "as though" those periods were separate taxation years, neither of those periods is a "taxation year" - the rules in subsection 111(1) provide only for the deduction, in a year of loss application, of a carried-over loss from a loss year."

The above answer would be different if the allowable capital loss was incurred in 1997. Paragraphs 13 to 17 of the bulletin provide the Department's comments with respect to that issue.

These comments are provided in accordance with the guidelines set out in paragraph 22 of Information Circular 70-6R3.

Yours truly,

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