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.
July 23, 1980
HEAD OFFICE R.B. Day 593-6937
Business Investment Loss
This is in reply to your memorandum of June 30 wherein you requested our views as to whether a business investment loss would reduce active business income or Canadian investment income for purposes of the calculation required by form T2S7.
Our understanding of the factual situation outlined in your memorandum is as follows:
a) A corporation incurred a business investment loss (i.e., a capital loss on the disposition of shares of a Canadian-controlled, private corporation) pursuant to paragraph 39(1)(c) of the Act.
b) This corporation has both active business income and Canadian investment income and is entitled to claim the small business deduction pursuant to subsection 125(1) of the Act.
It is our view that the business investment loss would reduce Canadian investment income. Our reasons for this view are as follows:
Paragraph 39(1)(c) of the Act defines a business investment loss as a capital loss for purposes of the Act. From the amendment to subparagraph 3(b)(ii) and paragraph 3(d), it is clear that an "allowable business investment loss" is intended to be an "allowable capital loss." It follows, therefrom, that for purposes of subparagraph 129(4) (a)(i), a business investment loss is an allowable capital loss and as such would reduce Canadian investment income.
Because an allowable business investment loss is a "net capital loss" it could be denied the deduction provided for in paragraph 111(l)(b), by virtue of the definition of "net capital loss" in paragraph 111(8)(a). An allowable business investment loss is thus defined as a "non-capital loss" in paragraph 111(8)(b) so that the loss would be afforded the same treatment under paragraph 111(1)(a) that it would have received under paragraph 111(1)(b).
We trust that this will be of assistance to you.
Chief Finance, Insurance, & Leasing Section Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch
RBD/jw
7-878 38(c) 39(1)(c) 129(4)
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