Opco incurred a non-capital loss (an "NCL") in each of its 2019 and 2020 taxation years (the 2019 and 2020 Loss Years), and carried back the 2019 NCL to its 2016 and 2017 taxation years, and its 2020 NCL incurred in 2020 to the 2017 and 2018 taxation years (the 2016. 2017 and 2018 Application Years) so as to reduce its taxable income to nil for the Application Years. In the 2020 Loss Year, Opco paid two taxable dividends of $200 each to its corporate shareholder, which it designated as eligible dividends – and then made an excessive eligible dividend designation in respect of each dividend. In its Part III.1 return for the 2020 Loss Year, only one of the taxable dividends was reported due to a good faith error.
After noting that the NCL carrybacks reduced the Opco GRIP at the end of the 2019, and then the 2020, Loss Years under “B” of the GRIP formula, CRA addressed the question of whether it could accommodate an Opco request to have the NCL carrybacks reversed so as to restore the GRIP to a level allowing eligible dividends to be paid without engaging Part III.1 tax. Respecting the carryback from 2019 (with the same reasoning applying to 2020), CRA stated:
[U]nder the terms of subparagraphs 152(4)(b)(i) and 152(4.01)(b)(i), the Minister has the discretion to accept or reject such a request. For example, the Minister could agree to reduce the amount of those initial carrybacks to the extent that an error was made in good faith, but could refuse to do so in a situation amounting to retroactive tax planning. Since the initial request for a NCL carryback was linked to the filing of Opco's 2019 Loss Year tax return, the request to reduce the carryback amounts would have to meet both the criteria in subsections 152(3.1) and 152(4) in respect of the 2019 Loss Year and those in subparagraphs 152(4)(b)(i) and 152(4.01)(b)(i) in respect of the 2016 and 2017 Application Years for the Minister to consider it.