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.
Principal Issues: 1. What is the process for requesting an adjustment to a year that is not statute-barred?
2. When would interest be charged on the application of a loss carry-forward?
Position: 1. If the taxation year is not statute-barred, a letter requesting the adjustment would be sufficient.
2. The impact of the loss carry-forward will be ignored until 30 days after the request has been made for the adjustment; interest will be charged from the balance-due date until then.
Reasons: 1. IC 75-7R3
2. S. 161(7)(b)(iv)
XXXXXXXXXX
2010-036018
Lindsay Frank
Attention: XXXXXXXXXX
December 7, 2010
Dear XXXXXXXXXX :
Re: Adjustment to a Taxation Year
This is in reply to your email of March 11, 2010, in which you raised questions regarding a taxpayer-requested adjustment.
The first issue deals with the process for requesting the adjustment. One of your clients wishes to include unreported income in a taxation year that is not statute-barred. This income stems from the application of subsection 15(2) of the Income Tax Act (the "Act") in respect of an unpaid shareholders' loan. The client has losses from a previous year available for carry forward to mitigate the effect of the income inclusion. Since the adjustment can be made within the normal reassessment period, it can be effected by writing a letter to the appropriate Taxation Centre.
The second issue deals with the computation of interest, that is, whether it is computed either on the entire unreported income or on the residual after the application of the loss carry forward allowed under section 111 of the Act. Subsection 161(7) of the Act provides that the impact of section 111 will be ignored until 30 days after the latest of four possible events. In this case, subparagraph 161(7)(b)(iv) applies, and interest will be computed on the adjusted tax payable from the balance-due date to 30 days after the making of the request. This interpretation accords with the position taken in Connaught Laboratories Ltd. v. Canada, 94 D.T.C. 6697 (F.C.T.D.), to which you made reference in your email.
Should you have any questions or require additional information, please do not hesitate to contact Lindsay Frank at the number provided above.
B.J. Skulski
Manager
Insolvency & Administrative Law Section
International & Trusts Division
Income Tax Rulings Directorate
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