Under subsection 152(1.1) of the Income Tax Act, a taxpayer may apply for a determination of losses for a tax year.

A taxpayer typically requests a loss determination after the CRA has issued a nil assessment. This is because no objection may be filed against a nil assessment, and thus one of the ways to challenge the adjustments underlying the nil assessment (i.e., the adjustments to losses or other tax balances) is to force the issuance of a Notice of Determination/Redetermination of Losses, which then triggers the right to file a Notice of Objection. If the taxpayer does not request a loss determination, the taxpayer may challenge the quantum of the losses in a subsequent year in which the losses are applied.

However, the timing of the loss determination request is an important issue – if the losses cannot be applied until several years after the tax year at issue, this could create uncertainty and additional (and perhaps burdensome) record-keeping requirements for the taxpayer.

This issue was considered in CRA Document No. 2014-0550351C6 (November 18, 2014), in which the CRA was asked whether it would issue a determination of loss to a taxpayer who requests one upon filing of its return (i.e., rather than at the later time when a nil assessment is issued).

Under subsection 152(1.1), where the CRA ascertains the amount of a taxpayer’s non-capital loss or net capital loss (or certain other losses), and the taxpayer has not reported that amount on the taxpayer’s return, the taxpayer may request that the CRA determine the amount of the loss and the CRA must make that determination and send a notice of determination to the taxpayer.

In the present case, the CRA stated that subsection 152(1.1) provides that two requirements must be satisfied before a loss determination may be made: First, the CRA must ascertain the amount of the taxpayer’s loss to be an amount that differs from the amount reported by the taxpayer in its return, and (ii) the taxpayer requests the loss determination.

In Inco Limited v. The Queen (2004 TCC 373), the Tax Court stated,

[13] … subsection 152(1.1) of the Act clearly contemplates and establishes a procedure involving sequential steps or events that must take place in order for there to be a valid loss determination. These steps are: (a) the Minister ascertains the amount of a taxpayer’s non-capital loss for a taxation year in an amount that differs from the one reported in the taxpayer’s income tax return; (b) the taxpayer requests that the Minister determine the amount of the loss; (c) the Minister thereupon determines the amount of the loss and issues a notice of loss determination to the taxpayer.

We also note that, in a previous technical interpretation (CRA Document No. 2011-0401241I7 “Adjustments outside the normal assessment period” (September 7, 2011)), the CRA stated,

Paragraph 4 of Interpretation Bulletin IT-512 “Determination and redetermination of losses” also clarifies the CRA’s position on the requirements for a loss determination to be issued:

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.

Therefore, where the difference in the amount of a loss for the year reflects an amendment by the taxpayer, this is not considered to be “ascertained” by the Minister, and therefore, on its own, does not meet the requirements for subsection 152(1.1) loss determination. Therefore, in this case, because the taxpayer is requesting the changes and the Minister would not be “ascertaining” the amount of the loss, the taxpayer cannot request a loss determination.

In CRA Document No. 2014-0550351C6, the CRA restated that, if it accepts the amount of the loss reported in the taxpayer’s return, the CRA has not ascertained the loss to be an amount that differs from the amount reported in the return. Accordingly, the first condition of subsection 152(1.1) would not be met, and the CRA could not issue a loss determination at the time the return was filed.

In the CRA’s view, the Act would need to be amended to allow for the issuance of a loss determination at the time the taxpayer files its return.

In other words, the present is no time to request a loss determination. Unless the Act is amended to alter the timing requirements, such a request must wait until the time at which the CRA determines the taxpayer’s loss to be an amount different from the amount reported in the return.