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.
March 10, 1995
International Taxation Office Foreign Section
P. Schryburt, Assistant Director S. Leung
Enquiries and Adjustments 957-2115
Attention: G. Rowland
950145
Paragraph 115(1)(e) of the Income Tax Act (the "Act")
We are writing in response to your round trip memorandum of January 16, 1995 wherein you requested a technical interpretation of paragraph 115(1)(e) of the Act for the purpose of determining whether a non-capital loss incurred by an individual while he was a resident of Canada would be allowed to be carried forward to offset income or gain that is required to be included in computing taxable income earned in Canada while he became a non-resident of Canada. In particular, you requested clarification as to whether the words "any profit or gain on which ..." found in paragraph 115(1)(e) of the Act only modify the words "a disposition of property" or whether they also modify "the duties of an office or employment performed by the non-resident person in Canada" and "a business carried on by the non-resident person in Canada". If it is the latter, it is your view that the non-capital loss incurred from a business carried on in Canada by the individual while he was a resident of Canada could not be considered to be applicable to a business carried on by that person in Canada any income from which would have been required by subsection 115(1) of the Act to be included in computing his taxable income earned in Canada. You further indicated that ¶2601 of the book titled "Preparing Your Income Tax Return" written by Arthur Andersen & Co., Chartered Accountants, states that "a business loss from a year of residence may not be applied in a year of non-residence...".
It is our opinion that the words "any profit or gain on which..." found in paragraph 115(1)(e) of the Act only modify the immediate preceding phrase "a disposition of property". As income from the duties of office and employment performed by a non-resident in Canada and income from a business carried on by a non-resident in Canada are required to be included in computing taxable income earned in Canada under subparagraph 115(1)(a)(i) and (ii) of the Act respectively, there is no need to specify such requirement again in paragraph 115(1)(e) of the Act. On the other hand, not all capital gains from dispositions of property are required to be included in computing a non-resident's taxable income earned in Canada. Only capital gains from dispositions of those properties described in paragraph 115(1)(b) of the Act are required to be included. Therefore, it is necessary to specify in paragraph 115(1)(e) of the Act the profit or gain on the disposition of those properties that would be required to be included in computing the non-resident's taxable income earned in Canada. You can find similar wording in paragraph 115(1)(c) of the Act where the words "any gain from the disposition of which..." only modify the words "allowable business investment losses in respect of property", not the losses from the duties of an office or employment performed in Canada nor the losses from businesses carried on in Canada. Furthermore, the preposition "on" in the phrase "on which ..." found in paragraph 115(1)(e) of the Act appears to qualify the disposition of property only as it is unusual to say profit or gain on the duties of an office or employment or on a business carried on in Canada.
It is our view that the intention of paragraph 115(1)(e) of the Act is to allow, for example, the utilization of losses incurred by a resident of Canada from a business carried on in Canada to offset income earned by such a person from a business carried on in Canada after that person becomes a non-resident of Canada. Such an utilization of losses from a business carried on in Canada is clearly allowed pursuant to subsection 111(9) of the Act if the person were a non-resident of Canada at the time the business losses were incurred. As long as the losses were incurred from a business carried on in Canada, we cannot see why his right of utilizing such business losses should be denied simply because at the time the business losses were incurred he was a resident of Canada, instead of a non-resident of Canada. We find nothing in section 111 of the Act that precludes a non-resident person to carry forward such business losses that he incurred while he was a resident of Canada. In this regard, please note that both paragraphs 6 and 17 of IT-262R only deny the carryforward of losses from an office or employment outside Canada or a business carried on outside Canada. It implies that losses from an office or employment in Canada or a business carried on in Canada are not prohibited.
Notice the word "may" used in the general statement "a business loss from a year of residence may not be applied in a year of non-residence..." referred to in your round trip memorandum. Under certain circumstances such a statement is not incorrect. For example, business losses incurred by a resident of Canada from a business carried on outside Canada cannot be applied in the year when that person is a non-resident of Canada. It does not say that any business loss from a year of residence (i.e. including the loss from a business carried on in Canada) cannot be applied in a year of non-residence.
In conclusion, an individual who, while resident of Canada, incurred a non-capital loss from a business carried on in Canada can, assuming the other requirements of the Act are met, apply that non-capital loss against a taxable capital gain realized on the disposition of a taxable Canadian property, income from the duty of an office or employment performed by him in Canada, or income from a business carried on by him in Canada in a subsequent year when he is non-resident of Canada.
for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch
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