Question

When shares are transferred from one group of shareholders to another and there is a change in control, which of the following applies?

a. Net-capital losses that arise following the change in control are automatically deemed to have expired.
b. Non-capital losses arising prior to the change in control are automatically deemed to have expired.
c. Net-capital losses arising prior to the change in control may be used against income from the business that incurred the loss if that business is carried on at a profit or with a reasonable expectation of profit in the year in which the losses are applied.
d. Non-capital business losses arising prior to the change in control may be used against income from the business that incurred the loss if that business is carried on at a profit or with a reasonable expectation of profit in the year in which the losses are applied.

Answer 1

Net-capital losses from before a change in control can be used against income if the business continues to operate profitably or with an expectation of profit.

Step-by-step explanation:

When shares are transferred from one group of shareholders to another resulting in a change in control of the company, certain rules apply to the treatment of losses. Specifically, option c is correct: Net-capital losses arising prior to the change in control may be used against income from the business that incurred the loss if that business is carried on at a profit or with a reasonable expectation of profit in the year in which the losses are applied. This means that if a business continues to operate after a change in control, and it is profitable or expected to be profitable, the accumulated net-capital losses from before the change can still potentially be utilized to offset taxable income.