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.
CRA noted that s. 161(7) – which contemplates that where there is a carryback of a loss to eliminate a tax payable balance for a taxation year, interest generally will accrue on that balance until a specified effective date of the carryback – does not apply to a low carryforward. Here, provided that the loss carryforward eliminated the tax payable balance otherwise arising from the capital loss denial, no arrears interest would be charged on that assessment.