27 May 1998 CTF Roundtable, 9811750 - IN-HOUSE LOSS UTILIZATION ARRANGEMENTS

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:

Status of the Department’s position re: in-house loss consolidation arrangements.

Position:

Presently, as stated in Technical News No. 3 & 9. Awaiting decision from Federal Court of Appeal to determine if we will change our position to be consistent with the decision in Mark Resources.

Reasons:

SPEAKING NOTES FOR RICK BISCARO FOR GOODMAN PHILLIPS & VINEBERG & CHARTERED ACCOUNTANTS OF ONTARIO ROUND TABLE, MAY 27, 1998

Treatment of Losses for Tax Purposes

Query

Limits on in-house loss utilization?

Notes

• Our general position concerning loss consolidation arrangements within a corporate group is as stated in Technical News No. 3, dated January 30, 1995 and Technical News No. 9, dated February 10, 1997.
• Transfers of income or deductions between corporations that are affiliated using transactions that are legally effective and complying with all applicable provisions of the Income Tax Act will not usually result in the application of GAAR.
• The Tax Court of Canada decisions in Mark Resources (93 DTC 1004) and Canwest Broadcasting (96 DTC 1375) indicate it is arguable that borrowed money in schemes involving the borrowing of money by one corporation in the group (e.g. see income tax ruling ATR -44 or example 5 of Information Circular 88-2 Supplement 1), do not meet the requirements in paragraph 20(1)(c) that the borrowed money be used for the purpose of earning income, when the overriding economic purpose is to save taxes within the group. Notwithstanding these decisions, the Department will maintain its position with respect to this type of arrangement pending the outcome of a similar case presently before the courts. At that time we will review our position and any change will be announced in the Income Tax Technical News. (XXXXXXXXXX)
• In Technical News No. 9 is the text of a presentation given by Rick Biscaro on November 27, 1996, at the annual conference of the Canadian Tax Foundation. It states in part that

...Bill C-69 (now Bill C-28) proposes to amend subsection 69(11) to deny rollover treatment on certain transfers to persons with whom the transferor is not affiliated, rather than not related as under the existing law...

...a series of transactions that results in the transfer of the benefit of the losses...from one corporation to a corporation with which it is not affiliated will generally be considered to result in an abuse...within the meaning of subsection 245(4)...generally effective with respect to transactions that began after April 26, 1995...