18 April 1990 Ministerial Letter 59738 F - Loss Carry-forward of a Former Non-resident

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.

April 18, 1990

Dear Sirs:

Re:  Paragraphs 111(1)(a) and Subsection 216(1) of the Income Tax Act (Canada) (the "Act")

This is in response to your letter of March 6, 1990, wherein you requested our view on the applicability of paragraph 111(1)(a) of the Act in a hypothetical fact situation restated by us below.

Facts

1.     During Period A, Mr. X, a non-resident, owned a Canadian rental property from which he earned gross rental revenues and in respect of the rental of which he incurred operating costs.

2.     Mr. X's rental activity did not constitute the carrying on of a business in Canada.

3.     In each taxation year during Period A, the gross rental income from such property credited to or received by Mr. X was less than his operating expenses in such year.

4.     Mr. X did not elect under subsection 216(1) of the Act to pay tax under Part I of the Act for any taxation year during Period A.

5.     After Period A, that is, at the commencement of Period B, Mr. X became a resident of Canada for purposes of the Act.

Question

The question is whether Mr. X's "annual operating losses" sustained during Period A would be deductible by Mr. X for the purposes of computing taxable income for a taxation year in Period B, pursuant to paragraph 111(1)(a) of the Act, upon his becoming resident in Canada.

Opinion

Pursuant to paragraph 111(8)(c), Mr. X's non-capital losses were losses from businesses carried on by him in Canada. As the rental income is income from property and not from a business, the annual operating losses in Period A would not constitute non-capital losses to Mr. X and would therefore not be deductible by him in computing his taxable income in any taxation year in Period B.

The above opinion is expressed subject to the general limitations and qualifications of Information Circular 70-6R, dated December 18, 1978, and is not binding on the Department.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental  Affairs Branch