16 September 2003 External T.I. 2003-0030245 - 14(1.01) Election and the CDA

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: At what point in time is an amount added to the CDA, when a taxpayer elects under subsection 14(1.01) of the Act to treat the actual disposition of an ECP as a deemed disposition of capital property?

Position: No amount can be added to the CDA until the taxpayer files its election under subsection 14(1.01) of the Act with its return of income for the year.

Reasons: The property disposed of is still considered an eligible capital property until the taxpayer files its election under subsection 14(1.01) of the Act with its return of income for the year.

Randy Hewlett, B.Comm.

XXXXXXXXXX 613-957-8973
2003-003024
September 16, 2003

Dear XXXXXXXXXX:

Re: Election Under Subsection 14(1.01) Of The Income Tax Act (The "Act")
And The Capital Dividend Account ("CDA")

We are writing in response to your letter of July 11, 2003, wherein you requested our opinion on the above-noted issue.

In your letter, you referenced a technical interpretation we issued October 22, 2002 (our file 2002-0163825). This letter concerned the issue of the point in time an actual disposition of eligible capital property ("ECP") is deemed to be a disposition of capital property when a taxpayer elects under subsection 14(1.01) of the Act. We indicated that the time of the deemed disposition is the actual date of disposition, not the date the election under subsection 14(1.01) of the Act is filed with the return of income for the year.

You inquired if the taxpayer can add an amount to the CDA at the time of the disposition or must wait until the election under subsection 14(1.01) of the Act is filed with the return of income for the year. You are mainly concerned because an amount can only be added to the CDA in respect of a disposition of ECP when there has been an income inclusion under subsection 14(1) of the Act, which can only be determined at the end of the taxation year.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to offer the following comments.

In our view, until the required election under subsection 14(1.01) of the Act has been made and filed with the taxpayer's return of income for the year, no amount can be added to the CDA.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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