18 December 1996 External T.I. 9637865 - ABIL

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

Are intercorporate dividends taxable dividends for purposes of 39(1)(c)(vi)

Position:

Yes see def of div in 89(1).

Reasons:

law

		963786
XXXXXXXXXX		S. Tevlin

December 18, 1996

Dear: XXXXXXXXXX:

Re: Allowable Business Investment Loss ("ABIL")

We are writing in response to your letter dated November 13, 1996 and our telephone conversation of December 13, 1996 wherein you requested our opinion with respect to the calculation of an ABIL pursuant to paragraph 39(1)(c) of the Income Tax Act (the "Act").

In particular you have asked whether an intercorporate dividend is a "taxable dividend" as that term is used in subparagraph 39(1)(c)(vi) of the Act.

You have also asked whether an amount deducted from a taxpayers capital loss in the determination of a business investment loss, pursuant to subparagraph 39(1)(c)(v) of the Act, continues to be a capital loss.

In this regard we offer the following general comments.

"Taxable dividend" means a dividend other than those types of dividends described in paragraphs (a) and (b) of that definition in subsection 89(1) of the Act. Therefore, any dividend received by a taxpayer other than one described in either of paragraphs (a) or (b) of that definition would be a taxable dividend for purposes of subparagraph 39(1)(c)(vi) of the Act.

The Income Tax Act provides that in determining the amount of a business investment loss, the loss must be reduced by any amounts added to the adjusted cost base ("ACB") of the shares described in subparagraph 39(1)(c)(iii) of the Act pursuant to the application of subsection 85(4) of the Act. While the amount of the business investment loss must therefore be reduced, the amount of the reduction nevertheless remains a capital loss for the year and as such may be applied against capital gains.

The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch