Income Tax Interpretation Bulletin

Determination and redetermination of losses

NO.: IT-512

DATE:  July 15, 1988

SUBJECT: INCOME TAX ACT
Determination and redetermination of losses

REFERENCE:  SUBSECTIONS 152(1.1), (1.2) AND (1.3)

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Application

This bulletin applies to requests made after

Summary

This bulletin deals with requests for a determination of the amount of a loss for a particular taxation year when the amount of the loss ascertained by the Minister has not been reported by the taxpayer for that taxation year.

A determination or redetermination enables the taxpayer to object to or appeal the amount of the loss. If a determination is not requested, an objection or appeal in respect of the amount of the loss may be made only in the year in which the loss is deducted under section 111 (see 6 below).

The commentary below discusses situations giving rise to such a request and the action taken by the Minister on receiving it.

Discussion and Interpretation

1. Subsection 152(1.1) provides a mechanism whereby the Department's computation of a taxpayer's losses (non-capital, net capital, restricted farm, farm or limited partnership loss) for a taxation year may be objected to or appealed in cases where there would not otherwise have been a right of objection or appeal because there was a nil assessment for that taxation year. But for subsection 152(1.1), an objection to or appeal of the computation could be made only in respect of the taxation year in which the loss was deducted.

2. Where the Minister ascertains the amount of a loss for a taxation year and the taxpayer has not reported such amount as a loss for that year (e.g., the taxpayer may have reported a loss of a different amount, a profit or a nil income), subsection 152(1.1) provides that the Minister is required upon a request by the taxpayer to "determine" the amount of the loss and to send a "notice of determination/ redetermination of a loss" (form T67-AM) confirming the amount of the loss so determined. For greater certainty, subsection 152(1.2) provides that the Minister may make an original determination of a loss only at the taxpayer's request.

3. Where the provisions of subsection 152(1.1) are otherwise satisfied, it is the Department's practice to act upon a request for a determination of losses where

(a) a corporation has been wound up under subsection 88(1) into another corporation and that corporation has made the request in respect of losses which are deemed to be its losses under subsection 88(1.1) or (1.2); or

(b) there has been an amalgamation and the new corporation has made the request in respect of losses of the predecessor corporation referred to in subsection 87(2.1).

4. Where at the initial assessing stage or as a consequence of a reassessment arising from an audit or other investigative action by the Department the Minister ascertains a loss in an amount other than that reported by the taxpayer, a notice of assessment or reassessment (including a notice of "nil" assessment or reassessment) will be issued with an explanation of the changes. As well, the notice will inform the taxpayer that upon request the Minister will make a determination of the loss so ascertained and issue a notice of determination/redetermination. In this context, the Minister will not be considered to have ascertained that the amount of a loss differs from an amount reported by the taxpayer where the difference fully reflects a change requested by the taxpayer as a result of amended or new information.

5. The provisions of Divisions I and J as they relate to an assessment or reassessment and to assessing or reassessing tax, modified as the circumstances require, apply as well to determinations and redeterminations of losses. Subsection 152(1.2) specifically excludes the application of subsections 152(1) and (2) from determinations of losses under subsection 152(1.1). Consequently, although the conventional rules concerning assessments, reassessments, objections and appeals apply in the context of determinations and redeterminations of losses, the Minister is relieved of an obligation to initiate the procedure. Subsection 152(1.2) also provides that, with whatever modifications the circumstances require, paragraphs 56(1)(l) and 60(o) concerning legal costs also apply.

6. A taxpayer who has received a notice of determination/redetermination of a loss has the usual rights of objection and appeal. The Minister may redetermine the amount of the loss within three years from the date upon which the notice of determination was sent or at any time in the circumstances described in paragraph 152(4)(a). Subject to these rights, subsection 152(1.3) provides that a determination of loss is binding upon both the Minister and the taxpayer for the purposes of calculating the taxpayer's taxable income in any other year. That is, having initiated the determination procedure, the taxpayer (and of course the Minister) is bound by the ultimate result and may not appeal the amount of the loss so determined or redetermined when it is deducted under section 111. On the other hand, a taxpayer who chooses not to initiate the determination procedure may object or appeal, in respect of the amount of the loss, in the year in which it is deducted since subsection 152(1.3) does not apply in these circumstances.

7. Although no form has been prescribed or approved by the Minister for the purpose, a request for a determination of a loss should be in writing. Upon further notice in writing, a request may be withdrawn if the notice of determination/redetermination has not already been issued.