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: a) Do any provisions relieve arrears interest when a taxpayer fails to make an election under subsection 220(4.5) of the Income Tax Act (the "Act")?
b) Where a taxpayer has posted security, but disposed of part of the property, does arrears interest run from the balance due date for that tax year?
Position: a) Yes where is it just and equitable to allow a late election.
b) Yes.
Reasons: a) Subsection 220(4.54) of the Act.
b) Subsection 220(4.5) provides that security is no longer valid once the property secured has been disposed of.
February 7, 2003
Returns Processing & Compliance Section T. Cook
Non-Resident Operations Division 946-4165
International Tax Directorate
344 Slater St., 5th Floor
Ottawa ON
Attention: Steven Carscadden 2002-017228
Arrears Interest and Deemed Disposition Upon Emigration
We are writing in response to your email of November 5, 2002, in which you asked for our views on the correct approach for imposing arrears interest in two situations, and specifically whether any relieving provisions are applicable. We address the two situations below.
Situation A
A taxpayer emigrated from Canada in 1999 and at the time, a particular property owned by the taxpayer was not subject to a deemed disposition upon emigration. Section 128.1 of the Income Tax Act (the "Act") was retroactively amended by S.C. 2001, c. 17, s. 123(3), at which time the property became subject to a deemed disposition during the 1999 tax year. The taxpayer did not make an election, or provide adequate security, in accordance with subsection 220(4.5) of the Act. The taxpayer's 1999 return was reassessed in July 2001 to include the deemed disposition. Our understanding is that the taxpayer still owns the subject property. You query whether there is any provision relieving the arrears interest for this taxpayer, or whether the applicable interest must be calculated from April 30, 2000.
When an individual ceases to be resident in Canada, that individual is deemed to have disposed of certain properties pursuant to paragraph 128.1(4)(b) of the Act. The provision, as amended, applies to changes in residence occurring after October 1, 1996. The taxpayer in your situation has not made an election or posted security in accordance with subsection 220(4.5). He or she should have made any election under subsection 220(4.5) by his or her filing-due date for the 2001 taxation year.
However, paragraph 220(4.54)(a) of the Act empowers the Minister of National Revenue to extend the time for making an election and furnishing security under subsection 220(4.5) where, in the opinion of the Minister, it would be just and equitable to do so. Given the limited facts, we can make no comment regarding the merits of your situation. If it is appropriate, the taxpayer could be allowed to make a late election and provide security under subsection 220(4.5), in which case no arrears interest would arise. Where a valid election under subsection 220(4.5) is made, individuals (other than trusts) are excused by subsection 220(4.51) of the Act from having to provide security for the first $100,000 of capital gains ($50,000 of taxable capital gains) arising from the deemed disposition. As a result, the taxpayer could be entitled to at least some relief from arrears interest, even if he or she does not post any security.
If a late subsection 220(4.5) election is not or cannot be made, we agree that arrears interest should apply from the balance-due day for the taxation year in which the individual emigrated from Canada. As you have pointed out, section 221.1 of the Act confirms that the fact a particular legislative amendment is retroactive does not prevent interest from being calculated as otherwise provided in the Act.
Situation B
A taxpayer emigrated from Canada in July 1998. Adequate security, as required by subsection 220(4.5), in respect of a particular property was provided before April 30, 2002. The taxpayer, however, disposed of part of the property in 2000. You wish to know whether arrears interest on the tax arising from the disposition must be calculated from April 30, 2001.
Where a property for which security was posted has been subsequently disposed of, subsection 220(4.5) provides that the taxpayer's security is only valid until the individual's balance-due day for the particular year in which the subsequent disposition occurred. In this instance, even though there has only been a partial disposition, there has been a subsequent disposition of property. Therefore, arrears interest for the portion of the property that has been subsequently disposed of is calculated from the balance-due day (April 30, 2001) for the taxation year in which the subsequent disposition took place.
We trust these comments are of assistance. Should you have any further queries with respect to this matter, please do not hesitate to contact Ted Cook at (613) 946-4165.
Jim Wilson
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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