29 August 1989 Income Tax Severed Letter AC58559 - Deductibility of Prior Year Non-capital Losses

19(1)                         5-8559
                                             A.A. Cameron
                                             957-2115

Dear Sirs:

Re: Deductibility of Prior Year Non-Capital Losses

We are writing in response to your letter of August 15, 1989 in which you requested a ruling on the above-mentioned subject matter with regard to certain unnamed taxpayers.

As discussed in our telephone conversation of August 28, 1989, advance income tax ruling requests are only considered in respect of identified taxpayers and in accordance with the guidelines contained in Information Circular 70-6R issued by Revenue Canada, Taxation (the "Department"). A copy of same has been enclosed for your information. You will note that written authorizations from all of the taxpayers must be submitted and complete disclosure of all facts, proposed transactions, and purposes of the proposed transactions must be provided. You should also specify the provisions of the Income Tax Act (the "Act") upon which rulings are being requested. A refundable deposit of $325.00 must also accompany the request, with the fee for each hour spent in furnishing advance rulings currently being $65.00 as previously discussed.

The above mentioned Information Circular also details certain, circumstances in which the Department may not be able to issue rulings. One such case is where the matter to be determined hinges primarily on questions of fact and all the relevant facts cannot be ascertained at the time of the request for the ruling. It would appear from your letter that the main provision of the Act in regard to which you wished to request rulings was paragraph 111(5)(a) thereof. Among the requirements for prior year non-capital losses to be deductible with regard to taxation years subsequent to a change in control, paragraph 111(5)(a)(i) requires "that business" (being the business which sustained the losses prior to the change of control) to be carried on "for profit or with a reasonable expectation of profit" throughout the relevant subsequent taxation year. In addition subparagraph 111(5)(a)(ii) refer to "...similar properties or the rendering of similar services". These factors involve questions of fact which may not be determinable at the time of a ruling request. Consequently we may, or may not be able to rule on this matter even if a fully documented ruling request is received.

Please contact Mr. Cameron at the above number if you have further questions on this matter.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch