CRA repeats that it generally denies a s. 113(1) deduction where Canco has failed to prepare surplus accounts – which failure also will preclude a late-filed Reg. 5901(2)(b) election

The 2019 IFA Conference (2019-0798761C6) dealt with the situation where Canco does not prepare detailed calculations of its various surplus and underlying tax balances in respect of a wholly-owned subsidiary (FA) from which it received a dividend, and claims a full s. 113(1) deduction for that dividend (without knowing how much is a deduction under s. 113(1)(a) rather than, say, s. 113(1)(d).)

CRA indicated that if a complete surplus computation is not provided to it, its current general practice is to deny the s. 113(1) deduction. CRA also indicated that where Canco wishes to late-file an election under Regs. 5901(2.1) and (2.2) in order for the dividend to be completely sheltered by the s. 113 deduction (e.g., if it later discovered that it had hybrid or taxable surplus), such a request for a late election generally would not be granted - because relying on surplus balances unsubstantiated by a detailed computation would generally not meet the condition in Reg. 5901(2.1)(b) of having demonstrated making reasonable efforts before the filing-due date.

CRA essentially repeated these positions at the October 11, 2019 APFF Roundtable, which suggests that it is quite serious about them.

Neal Armstrong. Secondary summaries of 11 October 2019 APFF Roundtable, Q.8 under s. 230(1) and Reg. 5901(2)(b).

Summaries of 2019-0798761C6 under s. 113(1)(a) and s. 5901(2.2).