7 October 2016 APFF Roundtable Q. 1A, 2016-0652951C6 F - Penalty late filed election-subsection 85(8) -- translation

7 October 2016 APFF Roundtable Q. 1A, 2016-0652951C6 F - Penalty late filed election-subsection 85(8)

Principal Issues: Whether the penalty for late filed/amended election under subsection 85(8) is applied on a property by property basis or per prescribed T2057 form.

Position: Per form.

Reasons: Long standing position.

FEDERAL TAXATION ROUND TABLE 7 OCTOBER 2016
2016 APFF CONFERENCE

1) ADMINISTRATIVE MATTERS:

1A) 85(8) penalty property-by-property

Where certain conditions are met, subsections 85(7) and (7.1) allow a taxpayer to make a late election in respect of the transfer of an eligible property in a rollover under subsections 85(1) and (2).

Questions to the CRA:

(a) Subsection 85(8) provides a penalty for a late election. Is this penalty applied on a property-by-property basis?

(b) If yes, please confirm how this penalty should apply in the following examples assuming that a single rollover form is filed in each of the examples:

(i) An unfurnished building is transferred. Two properties are transferred: the land and the building.
(ii) A building and appurtenant land are transferred. The building includes office furniture, computer equipment and several machines. In total, 100 properties are transferred.
(iii) A taxpayer transfers 1,000 shares of a corporation. Should this be considered to be in respect of 1,000 properties?
(iv) A portfolio of shares is transferred. The portfolio consists of 10,000 shares of Public Corporation A, 10,000 shares of Public Corporation B and 10,000 shares of Public Corporation C. Have 3 properties or 30,000 properties been transferred for penalty purposes?
(v) In Example # 4, if 3 rollover forms are filed (same assignor and assignee), is the answer different?

CRA response:

Under subsection 85(7) of the Act, a taxpayer has up to three years after the filing deadline in subsection 85(6) to make an election under subsection 85(1) or (2). Subsection 85(7.1) provides that a taxpayer may file an election more than three years after the original deadline or to amend an election any time if in the opinion of the Minister, the circumstances of a case are such that it would be just and equitable to permit a late or amended election.

However, a late election under subsection 85(7) or (7.1) generates a penalty calculated under subsection 85(8).

Where a taxpayer transfers several properties on a given date to a taxable Canadian corporation, the CRA's policy is to calculate the penalty under subsection 85(8) based on all the properties that appear on the prescribed form T2057 - Election on disposition of property by a taxpayer to a taxable Canadian corporation that is filed late, and not property by property, in the case where one form is filed.

In general, the penalty in respect of a late election will be the lesser of:

1. 1/4 of 1% of the excess of the fair market value ("FMV"), at the time the property was disposed of, of all the properties in respect of which an election or an amended election was made, over the total agreed amount agreed, for each month or part of a month during the period contemplated by the late election penalty; and
2. $100 for each month or part month during the period contemplated by the late election penalty, not exceeding $8,000.

Guylaine Gladu
(819) 639-3271
October 7, 2016