R & S Industries – Tax Court of Canada finds that a taxpayer is not bound by the statement of boot set out in its s. 97(2) election form

R & S Industries was unsuccessful in a motion to have the Federal Court direct CRA to reconsider its decision to not permit R & S Industries to file an amended s. 97(2) election form so as to change the agreed amounts. R & S then appealed to the Tax Court with a view to convincing the Court that the allocation of consideration between partnership-interest and non-partnership interest consideration set out on the (T2059) election form did not reflect the actual agreed allocation. CRA viewed this as an attempted end-run around R & S’s inability to amend its election, and sought to have the appeal dismissed on jurisdictional grounds.

Graham J considered that there was a crucial distinction between the T2059’s agreed amounts, which could not be altered by the Minister, and the allocation of the consideration, which was a purely factual matter which was merely recorded on the T2059, and which either CRA or the taxpayer were free to challenge in the Tax Court as not according with the actual facts. Accordingly, the Crown’s jurisdictional challenge was dismissed.

This case likely suggests that the CRA practice, of requiring that corrections to s. 85 etc. election forms be made through the filing of amended election forms accompanied by a late-filing penalty, is wrong to the extent that the changes relate to information other than the elected amounts.

Neal Armstrong. Summary of R & S Industries Inc. v. The Queen, 2017 TCC 75 under s. 97(2).