24 January 2002 External T.I. 2002-0117105 - $100,000 CAPITAL GAINS EXEMPTION

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: An individual, who has indicated that he will be disposing of a partnership interest in the near future, has asked whether he can now avail himself of the $100,000 capital gains election under subsection 110.6(19) of the Income Tax Act (the "Act"). POSITION: No

Reasons: The time limit for a late filed election under subsection 110.6(26) of the Act has expired and the fairness provisions (section 220(3.2) of the Act and section 600 of the Income Tax Regulations) are not applicable.

XXXXXXXXXX 2002-011710
M. Eisner, CA
January 24, 2002

Dear XXXXXXXXXX:

Your letter of December 17, 2001 addressed to Mr. Bill McCloskey, Assistant Commissioner, Policy and Legislation Branch, has been referred to us for reply. In your letter, you have asked about late-filing a capital gains election in respect of a partnership interest.

You have indicated that you may dispose of your partnership interest in the near future, which will give rise to a capital gain, and ask whether you could make an election under subsection 110.6(19) of the Income Tax Act (the "Act") prior to the disposition. If you are now permitted to make an election, you have indicated that the capital gain on the disposition of that property would be reduced.

Upon consideration of your circumstances, the Winnipeg Tax Centre indicated to you in a letter dated December 10, 2001 that you were no longer eligible to make an election under subsection 110.6(19) of the Act and that the fairness legislation was not applicable. You have asked for a reconsideration of this matter.

With respect to your request, subsections 110.6(19) to 110.6(30) of the Act set out rules in connection with the election relating to the elimination of the $100,000 capital gains exemption. In broad terms, these provisions allowed certain individuals to make elections with respect to the chrystallization of unrealized gains on February 22, 1994. In addition, section 39.1 of the Act, which deals with flow-through entities including partnerships, is relevant. For individuals (other than trusts), pursuant to subsection 110.6(24) of the Act, the election was generally required to be filed on or before April 30, 1995 or, in certain limited circumstances, on or before the day when the individual's Part I tax return for 1995 was required to be filed. However, subsection 110.6(26) of the Act specifically permitted the filing of a late election within two years after the applicable filing deadline provided an estimate of the amount of the penalty described in subsection 110.6(29) of the Act was paid at the time the election was filed.

In the case of the fairness legislation, subsection 220(3.2) of the Act deals with late filed, amended, or revoked elections under provisions that are prescribed under section 600 of the Income Tax Regulations. The capital gains election under subsection 110.6(19) of the Act is not prescribed under Regulation 600 for purposes of the fairness provisions. Accordingly, there is no provision which would permit an individual to file an election after the two-year extension described above has expired.

As a result of the above comments, we are in agreement with the conclusion of the Winnipeg Tax Centre that you are no longer permitted to file an election under subsection 110.6(19) of the Act.

In closing, we would add that while our tax system is one of self-assessment, the publications of the Canada Customs and Revenue Agency ("CCRA") for the 1994 taxation year highlighted the elimination of the capital gains exemption and the related election. We also note that the role of the CCRA is to administer and enforce the Act as passed by Parliament.

We trust that these comments are of assistance.

Yours sincerely,

Milled Azzi, CA
For Director
Business and Partnerships Division
Income Tax Rulings
Policy and Legislation Branch

c.c.: Patrick Elhatton
Winnipeg Tax Centre
T1Client Services

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