19 December 1990 Income Tax Severed Letter

24(1)
                                        903176
                                        L. Holloway
                                        (613) 957-2104

Attention:

          19(1)

December

Dear Sirs:

Re: Subsection 111(1.1) and Allowable Business Investment Losses

This is in response to your letter dated October 30, 1990, requesting an interpretation of subsection 111(1.1) of the Act. Specifically, your enquiry relates to the application of this subsection to allowable business investment losses (ABIL).

Subsection 111(1.1) provides for an adjustment to net capital losses carried forward or backward in years where the capital gains inclusion rate in the year the loss is applied differs from the inclusion rate in the year the loss is incurred. This adjusting provision does not apply to ABIL's carried forwards or backwards.

For example, if an ABIL is realized at a 75% rate, it will be applied against other income at that same rate, there will be no adjustment to this rate even if the loss is applied to pre-1990 years.

If the seven non-capital loss carry-forward years expire and the ABIL is still outstanding, it is then treated as a net capital loss. It is at this point that it is subject to the variable rate adjustments of subsection 111(1.1).

We trust these comments will be of assistance to you.

Yours truly,

for Director Business and General Division Rulings Directorate Legislative and Intergovernmental Affairs Branch