5-920600
24(1) R. Albert
(613) 957-2140
19(1)
June 8, 1992
Dear Sirs:
Re: Subsection 111(5.1) of the Income Tax Act (the "Act")
We are writing in reply to your letter of February 25, 1992 wherein you requested an interpretation of the provisions of subsection 111(5.1) of the Act and subsection 1100(11) of the Income Tax Regulations (referred to as "Regulation 1100(11)").
Subsection 111(5.1) is one of the provisions of the Act intended to prevent taxpayers from dealing in corporations having unrealized losses. As you noted, where control of a corporation has been acquired, the provisions of subsection 111(5.1) basically provide that where the undepreciated capital cost to the corporation of depreciable property of a prescribed class immediately before the acquisition of control exceeds the aggregate of the fair market value of all the property of that class immediately before the acquisition of control and the amount in respect of property of that class otherwise allowed under regulations made under paragraph 20(1)(a), the excess shall be deducted in computing the income of the corporation for the taxation year ending immediately before that time and shall be deemed to have been allowed as capital cost allowance under under paragraph 20(1)(a).
We confirm that subsection 111(5.1) will apply to capital property owned by a corporation even though capital cost allowance thereon is restricted due to the provisions of Regulation 1100(11). In our view, Regulation 1100(11) would restrict `the amount in respect of property of that class otherwise allowed under regulations made under paragraph 20(1)(a)' as described in paragraph 111(5.1)(b). However, Regulation 1100(11) would not apply to restrict the deduction resulting from the application of subsection 111(5.1). This deduction is `deemed to have been allowed in respect of property of that class under regulations made under paragraph 20(1)(a)' so it will be considered in determining the new undepreciated capital cost of the property to the corporation after the change in control.
We trust that these comments will be of assistance.
Yours truly,
G. Thornleyfor DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch