| 24(1) | 5-9843 |
| D. Yuen | |
| (613) 957-2111 |
19(1)
October 1, 1990
Dear Sirs:
Re: Subsection 55(2) of the Income Tax Act (the "Act")
We are responding to your letter of March 21, 1990 wherein you requested our comments on whether the phrase "reduction in the portion of the capital gain" as found in subsection 55(2) of the Act (the "phrase") includes the creation of, or increase in, a capital loss. We apologize for the delay in our reply.
Comments
Provided the dividend received or deemed to be received is otherwise subject to the provisions of subsection 55(2) of the Act, it is our view that the phrase encompasses any significant reduction in the portion of a capital gain referred to in that subsection including a situation where a capital loss is created. Where this is the case the provisions of subsection 55(2) of the Act would apply, subject to paragraph 55(5)(f) thereof if relevant, to the full amount of the dividend.
In our opinion, the phrase would generally not apply in a situation where a capital loss is increased, however, to our knowledge we have not encountered this problem in the context of an actual case and therefore this view might change based upon a review of the facts of a particular situation.
It should be noted that subsection 112(3) of the Act may apply in the above circumstances to reduce the amount of the capital loss, otherwise created or increased.
The comments expressed are not advance income tax rulings and are not considered binding on the Department, in respect of any taxpayer, in accordance with paragraph 24 of Information Circular 70-6R.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch