5-903079
Dear Sirs:
Re: Capital Gains Deduction
This is in reply to your letter of October 9, 1990 concerning the interaction of section 110.6 and paragraph 111(8)(b) of the Income Tax Act (the Act).
You specifically request our views as to whether a taxpayer may, pursuant to Clause 111(8)(b)(i)(A) of the Act increase the amount of his non-capital loss by the amount of his capital gains deduction claimed in the loss year under section 110.6 of the Act.
In your view, the taxpayer would be entitled to claim the capital gains deduction with the result that the individual will have "deducted" that amount under section 110.6 of the Act. The "deducted" amount would then be added in the calculation of the taxpayer's non-capital losses under paragraph 111(8)(b) of the Act, resulting in an increase of his non-capital loss for the taxation year.
Our Views
Subsection 248(1) of the Act provides that:
"taxable income" has the meaning assigned by subsection 2(2), except that in no case may a taxpayer's taxable income be less than nil.
Since deductions under section 110.6 are against taxable income, we originally had some difficulty in agreeing that an individual in the above circumstances could deduct any amount as a capital gains deduction in computing "taxable income", since net income was already nil.
We have now had an opportunity to review the interaction of these provisions and agree with you that an individual in the above circumstances would be entitled to claim a capital gains deduction in 1988 and subsequent taxation years, thereby increasing the amount of his non-capital loss under paragraph 111(8)(b) of the Act.
We trust this information will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
c.c. Walter Szyc Audit Applications Division