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Letter to Department of Finance Canada Re: Scope of "Loss Restriction Rules" (ITA section 251.2)


Release Date: 05/20/2014
Staff Reference: Ronald Sanderson

May 20, 2014

Mr. Grant Nash
Tax Legislation Division, Tax Policy Branch
Department of Finance Canada
140 O'Connor Street
Ottawa, ON K1A 0G5

Dear Grant,

Scope of "Loss Restriction Rules" (ITA section 251.2)

I am writing to you with respect to the "Loss Restriction Rules" introduced last year as part of Economic Action Plan 2013 Act, No. 2 and now contained in Income Tax Act (ITA) section 251.2. As indicated in a telephone conversation on February 24th, some of our member life and health insurance companies have raised concerns regarding some potentially unanticipated (and we suspect, unintended) consequences of this provision. I understand that you have already received comments from other financial services industry stakeholders relating to this matter. This letter summarizes our industry's concerns and suggests possible clarifications for the Department of Finance Canada's (“Finance’s”) consideration.

We understand that the Loss Restriction Rules are intended to limit "loss trading" activities, by which a taxpayer might otherwise acquire a majority interest in a trust or corporation in order to avail itself of accrued capital losses of that trust or corporation. As outlined below, we do not believe that such circumstances can reasonably be expected to occur with respect to investments in, or by, regulated life and health insurance companies in Canada.