A taxpayer reported a capital loss in year 1 of $50 million, which was applied to offset a $1 million capital gain realized in year 1 and a $49 million capital gain realized in year 2. When CRA denied the capital loss, the taxpayer requested that a non-capital loss balance in existence in year 1 be carried forward to offset both taxable capital gains. After noting that, in the situation where there is a carryback of a loss, s. 161(7) generally requires that interest still accrue on the tax payable balance that is eliminated by the carryback until 30 days after the latest of four points in time, the Directorate stated:
Paragraphs 161(7)(a) and (b) do not address at all the consequences of the deduction of any amount under section 111 in respect of a loss that was incurred in previous taxation year and that is carried forward. … [Here] paragraphs 161(7)(a) and (b) of the Act do not apply and assuming that the non-capital losses are sufficient to completely offset the increase in income, the taxpayer’s taxable income will not change. … Consequently, the tax calculation will not change, and there will be no arrears interest charged on the reassessment.