Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Principal Issues: Determination of the Effective Interest Date.
Position: In respect of the first loss carryback, the applicable effective interest date is 30 days after the date the taxpayer filed the subsequent return; whereas, in respect of the second carryback it is 30 days after the date of the filing of the notice of objection .
Reasons: The intent of s. 161(7) is to cover situations where a taxpayer ignores payment of taxes, with the expectation of incurring losses to be carried back to erase the tax liability.
July 13, 2010
Burnaby-Fraser Tax Services Office Headquarters
Appeals Division Income Tax Rulings Directorate
Attention: Dan Bell,
Chief of Appeals
2010-037169
Richard Aronoff
(613) 941-7239
Re: Effective Interest Date Where Loss Carried Back
This is in response to Tracy Sine's email of April 16, 2010 concerning the application of subparagraphs 161(7)(b)(i) to (iv) in the context of the following fact situation.
The taxpayer filed a 2001 income tax return on XXXXXXXXXX and reported a non-capital loss of approximately $XXXXXXXXXX . The loss was subsequently carried back to the 2000 taxation year as the result of a reassessment dated XXXXXXXXXX .
The taxpayer was audited in XXXXXXXXXX and the loss as well as the loss carryback were disallowed. The taxpayer subsequently objected to the reassessment and in XXXXXXXXXX the loss was not only allowed, but increased to approximately $XXXXXXXXXX .
No loss carryback was requested at that time, however, the taxpayer filed an appeal and the Tax Court of Canada ordered the non-capital loss increased to approximately $XXXXXXXXXX. The 2001 return was reassessed on XXXXXXXXXX in accordance with the judgment.
On XXXXXXXXXX , the taxpayer requested that the revised loss be carried back to the 2000 taxation year. The 2000 return was reassessed as requested to allow the loss carryback in accordance with subsection 152(4.2).
Ms Sine has asked for an interpretation as to what would be the applicable interest date for the purpose of reassessing the 2000 return on account of the loss carry back.
Paragraph 161(7)(b) deals with the computation of interest when a taxpayer carries back losses. In Connaught Laboratories Ltd. v. Canada, [1995] 1 C.T.C. 216 (F.C.T.D.), the Court held that the carryback of deductions, used to reduce the income tax of a preceding taxation year, would not affect the calculation of interest until 30 days after the latest of four possible dates. For the purposes of the foregoing facts, only the dates in subparagraphs 161(7)(b)(ii) and (iv) need to be considered, namely, the day that is 30 days after the latest of:
(ii) the date on which the taxpayer's or the taxpayer's legal representative's return of income for that subsequent taxation year was filed; and
(iv) where, as a consequence of a request in writing, the Minister reassessed the taxpayer's tax for the year taking into account the deduction or exclusion, the day on which the request was made.
In this instance, each of the two provisions is applicable. The applicable effective interest date relating to the carryback of the initial $XXXXXXXXXX is XXXXXXXXXX , which is 30 days after the date the taxpayer filed the subsequent return. The applicable date pertaining to the carry back of the remaining $XXXXXXXXXX ($XXXXXXXXXX - $XXXXXXXXXX ) would be 30 days after the day on which the taxpayer filed the notice of objection. The date on which the appeal was filed has no bearing on the matter since the appeal was merely a continuum of the objection/appeal process that commenced with the filing of the objection.
Should you have any questions or require clarification, please do not hesitate to contact Richard Aronoff at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Ontario Corporate Tax Division
Income Tax Rulings Directorate
c.c. Tracy Sine
Appeals Division
Burnaby-Fraser Tax Services Office
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