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.
Principal Issues: Whether interest accrues on an assessment under s 185(5).
Position: Yes.
Reasons: An assessment raised under s. 185(5) is treated as though it were raised under section 152. An assessment raised under section 152 is subject to interest. Therefore, interest is exigible on an assessment issued under s. 185(5).
March 19, 2009
Accounts Receivable Tax Programs Division HEADQUARTERS
Field Support Section Lindsay Frank
613-948-2227
Attention: Irene Rebizant
2009-031330
Exigibility of Interest on a Subsection 185(5) Assessment
This is in reply to an email from Ron Grove. The issue is the exigibility of interest on an assessment issued under subsection 185(5) of the Income Tax Act.
Subsection 184(2) imposes a liability on a corporation to pay a special tax under Part III. The liability is dependent on the existence of two factors. First, the corporation must elect under subsection 184(3) to have a dividend payable treated as a capital dividend, a capital gains dividend, or a mutual fund capital dividend. Second, the amount of the dividend paid must exceed the amount in the capital dividend account, the capital gains dividend account, or the mutual fund capital dividend account. The corporation's liability is equal to three-quarters of the excess amount paid.
Subsection 185(4) imposes a joint and several liability on the shareholders of a corporation, who received a dividend in respect of which an excessive election was made. The shareholders' liability will not exceed the amount of the dividend that was actually received.
Under the authority of subsection 185(5) shareholders may be assessed at any time after the last day on which the corporation may make the election. When such an assessment is raised, the provisions of Division I of Part I apply, as if the assessment were raised under section 152.
An assessment issued under section 152 is subject to interest under subsection 161(1); accordingly, interest is exigible on an assessment raised pursuant to subsection 185(4).
Should you need any clarification on this matter, please do not hesitate to contact Lindsay Frank at 948-2227.
B.J. Skulski
Manager
Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate
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