| February 5, 1990 | |
| TO - SYDNEY DISTRICT OFFICE | FROM - HEAD OFFICE |
| J.M. Inglis | C. Tremblay |
| Chief of Audit | (613) 957-2095 |
| File No. 7-4637 |
SUBJECT: Subsection 39(9) of the Income Tax Act (the "Act")
This is in reply to a round trip memorandum dated January 4, 1990 from Louis Phillipo of Audit Review, concerning a problem with subsection 39(9) of the Act and the capital loss application.
Our understanding of the District Office request is as follows.
In their view there is an apparent discrepancy in the legislation with respect to the reduction of a Business Investment Loss (B.I.L.) when a taxpayer had claimed a capital gains deduction in prior years. The reduced amount of the B.I.L. becomes an ordinary capital loss which is apparently only deductible against capital gains in the current year or is lost to the taxpayer. You seek our clarification.
Our Comments
Subsection 39(9) of the Act provides for a reduction of a business investment loss of an individual (other than a trust) in a taxation year where he has claimed a capital gains exemption in a previous taxation year. The reduction determined under 39(9) of the Act is considered a capital loss which the taxpayer may with as permitted under the Act. The taxpayer may choose to carry back the capital loss to a prior year thereby reducing the capital gain exemption in that year. There is, however, no requirement in paragraph 39(1)(c) to recalculate the B.I.L. for the current year, as the capital loss may be carried forward to be used against future capital gains. The taxpayer is thus left with the choice of having a net capital loss to carry forward or of having a refreshed capital gains exemption in the year that subsection 39(9) applies. Accordingly, in our review, there is no discrepancy.
We trust our comments will be of assistance to you.
B.W. DathDirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch