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:
Utilization of a subsidiary's loss in year before wind-up.
Position:
Loss realized by subsidiary deemed to be a loss of the parent for the taxation year of the parent in which subsidiary's loss year ended.
Reasons:
Short fiscal period in the subsidiary's final year will be restricted to loss carryforward period that would have been available to subsidiary.
5-964228
XXXXXXXXXX J. Teixeira
Attention: XXXXXXXXXX
December 12, 1997
Dear Sir,
Re: Subsection 88(1.1) of the Income Tax Act (the "Act")
This is in reply to your letter dated December 23, 1996 in which you requested our opinion on the operation of subsection 88(1.1) of the Act in the following situation:
1.A company ("Parentco") has a fiscal year end for tax purposes of June 30. Its wholly-owned subsidiary ("Subco") has a fiscal year end for tax purposes of March 20.
2.Subco has incurred non-capital losses in its fiscal years ended March 20, 1994, March 20, 1995 and March 20, 1996 (respectively, the "Subco 1994 Loss", the "Subco 1995 Loss" and the "Subco 1996 Loss").
3.On June 29, 1996, the winding-up of Subco was commenced and completed and a certificate of dissolution, pursuant to the relevant corporate statute, was received dated June 29, 1996.
4.During the period March 21, 1996 to June 29, 1996, Subco incurred further non-capital losses (the "Final Subco Loss").
5.Each of Parentco and Subco is a Canadian corporation as defined in subsection 89(1) of the Act.
You have asked for our comments concerning the determination of the number of years that Parentco may be able to utilize and carry forward the Subco 1994 Loss, Subco 1995 Loss, Subco 1996 Loss and the Final Subco Loss.
Paragraph 88(1.1)(b) of the Act provides that for the purpose of computing the taxable income of the parent for any taxation year commencing after the commencement of the winding-up, the non-capital loss of a subsidiary is deductible by the parent only if it would be otherwise deductible by the subsidiary on the assumption that the subsidiary had such a taxation year and sufficient income to use the loss that year. Paragraph 88(1.1)(c) of the Act provides that a loss realized by a subsidiary in the subsidiary's loss year is deemed to be a loss of the parent for the taxation year of the parent in which the subsidiary's loss year ended.
In the situation described herein, since the Final Subco Loss was realized on June 29, 1996, this loss will be deemed to be Parentco's loss realized in its taxation year ended June 30, 1996. As a result of paragraph 88(1.1)(b) and the short fiscal period in the Final Subco Loss year, the loss carryforward period for the utilization of Subco's losses will be restricted to the loss carryforward period that would have been available to Subco i.e. the Subco 1994 Loss will expire in Parentco's June 30, 2000 fiscal year end, the Subco 1995 Loss will expire in Parentco's June 30, 2001 fiscal year end, the Subco 1996 Loss will expire in Parentco's June 30, 2002 fiscal year end and the Final Subco Loss will expire in Parentco's June 30, 2002 fiscal year end.
The comments expressed in this letter are of a general nature and do not take into account considerations that may arise in the context of a specific transaction. As indicated in paragraph 21 of Information Circular 70-6R2, these opinions are not rulings and, accordingly, are not binding on Revenue Canada.
Yours truly,
for Director
Reorganization and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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