| 24(1) | 901735 |
| Glen Thornley | |
| (613) 957-2101 | |
| Attention: 19(1) | EACC9252 |
August 28, 1990
Dear Sirs:
Re: Paragraph 40(2)(g) and 111(4)(d) of the Income Tax Act
This is in reply to your letter of July 20, 1990 requesting our views on the interaction of the above noted paragraphs of the Income Tax Act (the "Act").
You note that paragraph 111(4)(d) of the Act operates when a corporation has undergone an acquisition of control, and the fair market value of one or more of its capital properties is less than the adjusted cost base ("ACB") of the property. In this circumstance, in conjunction with paragraph 111(4)(c) of the Act, the excess of the ACB over the fair market value of a particular asset is deemed to be a capital loss of the corporation for the taxation year that ended immediately before that time from the disposition of the property. You then question whether the "stop-loss" rules related to capital property disposition in paragraph 40(2)(g) of the Act have any relevance to the capital loss that is deemed to arise from the disposition of property in paragraph 111(4)(d) of the Act.
Our Comments
In our view the loss generated by paragraph 111(4)(d) of the Act is "deemed to be a capital loss of a corporation ... from the disposition of the property". The use of "the" rather than "a" indicates that not only is there a deemed capital loss but also a deemed disposition of the property. Thus, it appears that the "stop-loss" rules in subparagraph 40(2)(g) of the Act apply to the deemed capital loss and disposition under paragraph 111(4)(d) of the Act as both refer to dispositions of property.
We trust our comments will prove helpful.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch