Can a principal-business corporation create or increase a non-capital loss with a deduction for successored cumulative Canadian exploration expense (“CCEE”) under s. 66.7(3)?
The Directorate first provided an example of a taxpayer with a $100 profit from Business B, of which $75 (taking into account all reasonably attributable direct and indirect expenses) is attributable to production from a successored property, so that it can use $75 out of its successored CCEE pool balance of $200 to generate an s. 66.7(3) deduction under subdivision e and s. 3(c) of $75, so that only $25 of the $100 loss generated from Business A is used to bring its income down to nil under s. 3(d). The Directorate then stated:
As the above example illustrates, it is possible for a deduction under subsection 66.7(3) to effectively preserve all or part of a current year loss so that it may become a non-capital loss of a taxpayer. This is in contrast to a subsection 66.1(2) deduction … [which] cannot result in the preservation (or creation or increase) of a non-capital loss.
… [E]ven though deductions under subsection 66.7(3) (as well as under subsections 66.7(4) and (5)) might effectively preserve all or part of a current year loss as discussed above, they cannot, in and of themselves, create or increase a taxpayer’s non-capital loss. This is because a deduction under section 66.7 may only be applied to reduce current year income under paragraph 3(c) as it is a deduction that is permitted only pursuant to a specific provision within subdivision e.
The Directorate then stated:
[T]he above position, to the extent that it relates to deductions in respect of successored cumulative Canadian development expense and successored cumulative Canadian oil and gas expense, may differ from the CRA’s historic assessing practice. For taxation years ending after 2020, the CRA’s assessing practice will take into account the above position for all types of successored resource pools.