A public corporation (“Pubco”) acquires all shares of "Target" (theretofore, a Canadian-controlled private corporation with a calendar year end) on January 1, 2006, with no s. 256(9) election being made. Is there a low rate income pool ("LRIP") addition under s. 89(8)? The correspondent stated that “no amount could be determined for Target in respect of element I in the formula provided for in element H of subsection 89(8) since the definition of general rate income pool ("GRIP") is not applicable for the 2005 taxation year” suggested that there appeared to be an overstatement (from a policy perspective) of Target's LRIP “resulting from its inability to benefit from the GRIP balance that it would have otherwise enjoyed had its change in status occurred after January 1, 2006.” CRA responded:
[S]ubsection 89(8) is technically applicable … .
[R]esponsibility for tax policy … rests with the Department of Finance … .”
The second situation is the same except that the acquisition of control of Target occurs on January 1, 2008. The application of s. 89(8), without taking into consideration variable C, would result in a particular LRIP addition for Target. However, Target would also sustain a non-capital loss in its 2008 taxation year, which would not be carried back to prior taxation years. CRA stated:
[O]nly the amount of losses incurred by a particular corporation before the loss of its CCPC status that would be deductible and not yet deducted under subsection 111(1) in computing its taxable income for its taxation year before the change in status would be included in element C in subsection 89(8).
Thus, there would be no deduction under C for the 2008 loss.