2015-0585371I7 Corporate Minimum Tax Eligible Losses

Principal Issues: Whether the adjusted net loss reported for a taxation year is included in the computation of a corporation's eligible loss for a subsequent taxation year.

Position: No

Reasons: Pursuant to the Taxation Act, 2007 an error has been made in the computation of the adjusted net loss.

Author: Hooey, Kathy
Section: ss 56(1); 57(1); 58(1); 58(2) of the Taxation Act, 2007

                                                                                         October 1, 2015

Kerry Hanley                                                                    Lita Krantz
Senior Technical Applications Officer                              Manager,
Large Business and Program Integration Division           Deferred Income Plans II
                                                                                          International and Large Business Directorate,  
                                                                                          Financial Industries and Trusts Division
                                                                                          Income Tax Rulings
                                                                                          Directorate

                                                                                         2015-058537

Subject: Corporate Minimum Tax – Eligible Losses

This is in response to your recent Corporate Minimum Tax (“CMT”) question regarding whether a corporation’s (the “Corporation”) adjusted net loss reported in an otherwise statute barred year can be adjusted in a non-statute barred year.

CMT payable by a corporation for a year is calculated under subsection 56(1) of the Taxation Act (2007) (the “TA”). The amount of CMT payable for a taxation year is based on applying the CMT tax rate to the amount, if any, by which a corporation's adjusted net income (“ANI”) for the taxation year exceeds the corporation’s eligible losses.  Where a corporation has an adjusted net loss (“ANL”) no CMT is payable for the year.  However, where a corporation has ANI, subsection 58(2) of the TA deems eligible losses to be applied to the fullest extent possible to reduce the corporation’s ANI in a taxation year to nil, regardless of whether or not the corporation was subject to the CMT.

Pursuant to subsection 58(1) of the TA, eligible losses are determined at a point in time calculated to reflect, inter alia, the deeming provision in subsection 58(2) of the TA.  For taxation years ending after March 22, 2007, a corporation’s eligible losses for a particular taxation year is the sum of the corporation’s ANL’s for the previous 20 taxation years less any of these amounts that were deducted or deemed to have been deducted for the previous years.  The amount of a corporation’s eligible losses that is deducted or deemed to be deducted in any taxation year is limited to the corporation’s ANI for that year.

In 2007, the Corporation computed an ANL by deducting dividends from its CMT net income that were subject to section 112 (“section 112 dividend”) of the Income Tax Act (“ITA”).  The CMT legislation permits a dividend, deductible under section 112 of the ITA, to be deducted in the computation of a corporation’s ANI/ANL only to the extent the dividend was both deductible in computing taxable income and included in the computation of the corporation’s financial statement net income or loss for the year.  We understand that the section 112 dividend was not included in the computation of the Corporation’s financial statement net income for the 2007 year.  Therefore, in determining the Corporation’s eligible losses for the 2010 taxation year, the section 112 dividend received in 2007 is not deductible in determining the Corporation’s ANI/ANL for purposes of clause (b) of the definition of “F” in subsection 58(1) of the TA.  Based on the facts provided, the eligible losses for the 2010 taxation year will be $XXXXXXXXXX.

We trust our comments will be of assistance.

Yours truly,

Lita Krantz CPA, CA
for Director,
Deferred Income Plans, Section II
Financial Industries and Trust Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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