XXXX A. Jane (613) 957-2126
XXXX
July 23, 1986
Dear Madam:
This is in reply to your letter of June 2, 1986 requesting a technical interpretation of subsection 111(5) of the Income Tax Act (the "Act").
You indicate that in general terms, where a corporation has carried on the business of leasing properties or rendering services, losses sustained prior to a change of control of that corporation can be deducted after the change in control only to the extent of the corporation's income from the leasing of similar properties or the rendering of similar services. You ask whether for the purposes of subsection 111(5) of the Act, it is sufficient for a corporation engaged in a leasing business before a change in control to carry on after the change in control any leasing business or whether it is necessary that the kind of goods leased be the same as those leased prior to the change in control.
In our view, the wording of clause 111(5)(a)(ii)(A) of the Act in respect of a corporation engaged in a leasing business provides that non-capital losses incurred prior to a change in control of the corporation can be deducted against the aggregate of the following income of the corporation earned after the change in control:
- income from the same business, and - income from any other business where substantially all of the income is derived from leasing similar properties.
Thus, in answer to your query, it is not sufficient for a corporation having incurred non-capital losses while engaged in a leasing business before a change in control to carry on after a change in control any leasing business in order to preserve deductibility of these losses against income earned after the change in control. Such losses are only deductible after a change in control against income earned from the same business of the corporation and against income earned by the corporation from any other business where substantially all of the income from that business is derived from leasing similar properties.
Whether or not the business carried on after a change in control is the same business as that carried on before the change and whether or not properties leased before and after a change in control are similar properties are, of course, questions of fact and as such depend on the particular circumstances in each case. In respect of the "same business" issue, you may find the comments in Interpretation Bulletins IT-206R and IT-376 to be of assistance.
We trust this will be helpful to you.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch