LANGIND E
DOCNUM 2009-0319471I7
AUTHOR Frank, Lindsay
DESCKEY 26
RATEKEY 2
REFDATE 091002
SUBJECT Loss Carry Back and Charitable Donation Credit
SECTION s. 111 ITA
SECTION s. 118.1 ITA
SECTION s. 161(7)(a)(iv)
SECTION
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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:     Whether interest should be cancelled on a reassessment where a loss was carried back from a subsequent year and a charitable donation was carried forward from a prior year. 
POSITION:        No.
REASONS:       If the loss was carried back to a taxation year in which tax was payable, subparagraph 161(7)(a)(iv) of the Income Tax Act applies.

                                                                                                            October 2, 2009

            Ottawa Technology Centre                                             HEAD OFFICE
            Data Assessment and Evaluations                                 Lindsay Frank
            Programs Division                                                                     (613) 948-2227

            Attention: Margaret O'Hara, Manager
            Estate and Trust Returns Processing Section
                                                                                                            2009-031947

            Effect of Loss Carry Back and Charitable Donation
            Credit Carry Forward on Computation of Interest

This is in reply to an email from Robert A. Frost.  At issue, is a taxpayer's request for cancellation of interest in respect of a reassessment, where the application of a loss carry back from a subsequent year, and the carry forward of a charitable donation credit from a prior year, resulted in no tax being payable.  The taxpayer is of the view that its circumstance is similar to that addressed in document F2005-1414251C6. 

Subparagraph 161(7)(a)(iv) of the Income Tax Act states that where losses under section 111 and charitable donations under section 118.1 are applied and result in no tax payable, interest is payable on tax that would have been payable, but for the loss carry back and the charitable donation, see Connaught Laboratories v. R., [1995] 1 C.T.C. 216 (T.C.C.).

In the situation addressed in document F2005-1414251C6, the loss was carried back to a taxation year where there was no tax payable.  The position taken was that interest is not payable on a reassessment of a particular taxation year, if the reassessment, where losses were carried back and substituted for a tax credit claimed in that year, does not change tax payable.  In this instance however, the loss was carried back to a taxation year in which tax was payable; hence, subparagraph 161(7)(a)(iv) was properly applied.

Should you need clarification or additional information, please do not hesitate to call Lindsay Frank at the number provided above.

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate

c.c. Robert A. Frost
       Judy Peters