19 June 1998 External T.I. 9815695 - ALLOWABLE BUSINESS INVESTMENT 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.

XXXXXXXXXX 					981569
T. Harris
Attention:  XXXXXXXXXX 

June 19, 1998

Dear Sirs:

Re: Paragraph 50(1) of the Income Tax Act (the "Act")

This is in reply to your letter of June 9, 1998, wherein you requested a technical interpretation of the application, inter alia, of paragraphs 50(1)(a) and 39(1)(c) of the Act to the proposed series of transactions described in your letter.

Our Comments

The situation described in your letter appears to involve actual proposed transactions relating to specific taxpayers. Assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996. However, we can offer the following general comments which we hope will be of assistance to you.

The Department’s interpretation of paragraph 50(1)(a) of the Act is set out in Interpretation Bulletin IT-159R3. The comments in paragraphs 1, 2 and 10 of IT-159R3 set out the criteria to be used to determine whether paragraph 50(1)(a) would apply with respect to the loans referred to in your letter.

The Department’s views with respect to business investment losses are described in Interpretation Bulletin IT-484R2. The comments in paragraphs 3 to 7, as well as those in paragraphs 9 and 10, of IT-484R2 would be relevant in determining whether any loss arising on a deemed disposition of a debt pursuant to paragraph 50(1)(c) will qualify as a business investment loss for the purposes of paragraph 39(1)(c) of the Act.

Where there has been an amalgamation of two or more corporations pursuant to subsection 87(1) of the Act, subsection 87(2.1) sets out the conditions which determine whether any losses of a predecessor corporation are deductible by the corporation formed on the amalgamation. Paragraphs 87(4)(c) to (f) will not generally apply where the fair market value of the shares that each shareholder of a predecessor corporation holds in the amalgamated corporation is equal to the aggregate fair market value of that shareholder’s shares in the predecessor corporations. In any other case, it will be a question of fact as to whether any shareholder desired to confer a benefit on a related person.

The application of subsections 15(1) and 245(2) to any series of transactions can only be determined following a review of all of the relevant facts.

These comments are provided in accordance with 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
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