2018-0779061I7 Deducting losses for AMT purposes

Principal Issues: Whether non-capital losses considered under clause 127.52(1)(i)(i)(B) can be from different taxation years than those actually deducted for the taxation year under paragraph 111(1)(a).

Position: Yes, provided that they do not exceed the actual amount of losses deducted under paragraph 111(1)(a) for the taxation year.

Reasons: Clause 127.52(1)(i)(i)(B) allows a taxpayer to deduct non-capital losses for AMT (Division E.1) purposes if they would have been deductible had they been calculated using the assumptions noted in paragraph 127.52(1)(i). Any adjustments made for AMT purposes are calculated using the AMT rules in effect for the year in which the loss was incurred.

Author: Clarkson, Julia
Section: 127.52(1)(i)(i), 111(1)(a), 164(3)

XXXXXXXXXX                                                                     2018-077906
                                                                                            Julia Clarkson

October 16, 2023

Dear XXXXXXXXXX:

Re: Non-capital losses for AMT purposes

This is in reply to your letter requesting our views on whether a taxpayer can deduct a non-capital loss for alternative minimum tax (AMT) (or Division E.1) purposes when that taxation year’s non-capital loss has not yet been claimed for income tax (Division E) purposes under paragraph 111(1)(a) of the Income Tax Act. We apologize for the delay in our response.

All statutory references in this document are to the Income Tax Act, R.S.C. 1985, (5th Suppl.) c.1, as amended (the Act), unless stated otherwise.

Our comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R12, Advance Income Tax Rulings and Technical Interpretations.

For AMT purposes, a taxpayer’s losses incurred in other taxation years are recalculated using the assumptions noted in paragraph 127.52(1)(i) and compared against the total amount actually deducted under section 111. However, any adjustments made for AMT purposes are calculated according to the Division E.1 rules in effect for the year in which the loss was incurred.

Similar to the description stated in external technical interpretation E 2001-0099765, for AMT purposes the deduction for non-capital losses, restricted farm losses, farm losses and limited partnership losses are generally limited by subparagraph 127.52(1)(i)(i) to be the lesser of the amounts actually deducted for the year under paragraphs 111(1)(a), (c), (d) and (e), (footnote 1) and the amount “that would be deductible under those paragraphs” as determined under clause 127.52(1)(i)(i)(B). For taxation years that end after 2011, a taxpayer’s pool of deductible losses must be recomputed using the assumptions noted in subclause 127.52(1)(i)(i)(B)(III), as if paragraphs 127.52(1)(b) to (c.3), (e) and (e.1) applied to the amounts.

If a taxpayer was allowed to claim a different year’s loss under clause 127.52(1)(i)(i)(B) than was actually deducted for Division E purposes, as considered under clause 127.52(1)(i)(i)(A), when that loss is deducted for Division E purposes in a future taxation year there would be no loss deductible for AMT purposes under clause 127.52(1)(i)(i)(B) because the loss would have been claimed in a prior taxation year and would no longer be deductible because of subparagraph 111(3)(a)(i).

Such a reduction of non-capital losses for AMT purposes from those claimed for income tax (or Division E) purposes would need to be added back on line 12220 or 12221 of T3 Schedule 12 or variable F of line 44 on Form T691. The reduction might not match the wording of what is in the printed schedule or form, but it should be clear to a taxpayer that this is the place to report such an adjustment.

Due to the wording of subparagraph 127.52(1)(i)(i), a taxpayer’s paragraph 111(1)(a) deduction hypothetically taken in a taxation year for AMT purposes can use non-capital losses that are from different taxation years than those actually deducted under paragraph 111(1)(a) when calculating Division E income taxes payable for that taxation year. Similar treatment would apply to losses claimed under paragraphs 111(1)(c), (d) and (e).

Any AMT that might result when a taxpayer’s AMT liability exceeds its income taxes payable will generally be available to reduce income taxes payable in the seven immediately following taxation years under subsections 120.2(1) and (3).

We trust these comments will be of assistance.

Yours truly,

Terry Young, CPA, CA|
Section Manager
for Director
Specialty Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 See the current version of clause 127.52(1)(i)(i)(A) of the Act. Note that legislation released on August 4, 2023 proposes to restrict the amount of losses deducted under paragraph 111(1)(a) and (e) to 50% of the amounts deducted for Division E purposes.

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