5-910949
Dear Sirs:
Re: Subsection 111(1)(a) of the Income Tax Act (the "Act")
This is in reply to your letter of April 2, 1991 wherein you requested that we confirm your understanding that a non-capital loss carried forward could be preserved in the following hypothetical situation:
1. A corporation incurs a non-capital loss of $1,000 in its 1990 taxation year.
2. In its 1991 taxation year, it incurs a taxable capital gain of $1,000 and applies the non-capital loss from 1990 against this gain, resulting in nil taxable income and nil taxes payable for 1991.
3. In the 1992 taxation year the corporation has an allowable capital loss of $1,000. It files an amended return for 1991 pursuant to subsection 152(6) of the Act, claims a deduction under paragraph 111(1)(b) for the $1,000 capital loss incurred in 1992 and wipes out the 1991 taxable capital gain. It is your view that, by doing so, the $1,000 non-capital loss incurred in 1990 will be preserved for application in future years.
4. It is also your view that, as no taxes were payable in respect of the 1991 taxation year, the carryback of the $l,000, 1992 allowable capital loss as described in (3) above would not result in an interest charge pursuant to section 161 of the Act in respect of the 1991 taxation year.
Our Comments
Provided that the 1991 taxation year is still open for reassessment pursuant to subsection 152(4) of the Act, it is our view that the non-capital loss from 1990 could be preserved for application to future years as described in the above situation.
In addition, since there was no Part 1 tax payable on the original 1991 return filed or on the revised one it is the practice of the Department not to charge interest under subsection 161(1) of the Act.
We trust our comments will be of assistance to you.
Yours truly,
for DirectorBusiness and GeneralLegislative and Intergovernmental Affairs Branch