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: 1. In amending the deceased’s final T1 return for a subsection 164(6) election, is the filing of a T1 Adjustment Request sufficient? 2. When a subsection 164(6) election is filed and the loss application results in a refund, when does interest begin to accrue on the refund?
Position: 1. No. 2. Interest on the refund arising as a consequence of subsection 164(6) election begins 30 days after the latest of: (a) the first day immediately following the subsequent taxation year, (b) the day on which the return of income for that subsequent taxation year was filed, and (c) the day on which the amended return was filed under paragraph 164(6)(e).
Reasons: 1. Paragraph 164(6)(e) requires the legal representative to file an amended return of income. 2. Paragraphs 164(5)(d), (i), (j) and (k) apply for the purpose of the interest refund rules in subsection 164(3) and deem the overpayment to have arisen on the day that is 30 days after the latest of these three days.
2022 STEP CRA Roundtable – June 15, 2022
QUESTION 13. Subsection 164(6) – Amending Deceased’s Final T1 Return
Subsection 164(6) of the Act (footnote 1) allows capital losses of a graduated rate estate in its first taxation year to be considered capital losses of the deceased, where all required conditions are met. Such conditions include that the estate is a graduated rate estate (“GRE”), an election is filed, and the legal representative amends the deceased’s final T1 return of income.
a) In amending the deceased’s final T1 return of income, is the filing of a T1 Adjustment Request sufficient?
b) Assume a refund results from the application of the election under subsection 164(6). When does interest begin to accrue on the refund?
CRA Response
a) Subsection 164(6) of the Act allows the legal representative that is administering the GRE of a deceased taxpayer to elect to have all or part of the GRE’s capital losses (to the extent they exceed its capital gains) that are realized in its first taxation year to be deemed to be capital losses of the deceased (footnote 2) . The election, which results in the carry back of the elected amount to the final T1 return of the deceased, can be useful in addressing potential double taxation which may arise on death.
To make the election, paragraph 164(6)(e) requires the legal representative to file an amended final T1 return of income for the deceased taxpayer to give effect to the election made under paragraph 164(6)(c). As such, filing a T1-ADJ, T1 Adjustment Request, is not sufficient. When filing the amended final T1 return, the legal representative must clearly identify the amended return of the deceased person as a “164(6) election”. For more information, see pages 32 and 33 of T4013, T3 Trust Guide 2021 (footnote 3) .
b) Any refund arising from the subsection 164(6) election will be paid out to the deceased’s legal representative (estate executor) in respect of the final T1 return of the deceased taxpayer. Given that such an election shifts the losses available to be deducted from the GRE to the final T1 return, it would not give rise to a refund in respect of the GRE.
The portion of any overpayment of the tax payable by a deceased taxpayer for a taxation year that arose as a consequence of the deduction for losses relating to an election under paragraph 164(6)(c) or 164(6)(d) by the taxpayer’s legal representative, is deemed to have arisen (and as a result, refund interest would start) on the day that is 30 days after the latest of:
- the first day immediately following the subsequent taxation year,
- the day on which the return of income for that subsequent taxation year was filed, and
- the day on which the amended return was filed under paragraph 164(6)(e) (footnote 4) .
William King
2022-092938
Response prepared in collaboration with:
Individual Returns Directorate
Assessment, Benefit and Service Branch
FOOTNOTES
Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:
1 The Act means the Income Tax Act R.S.C. 1985 (5th Supp.) c.1 as amended from time to time and consolidated to the date of this response and, unless otherwise expressly stated, every statutory reference herein is a reference to the relevant provision of the Act.
2 An election can also be made in respect of a terminal loss of the GRE pursuant to paragraph 164(6)(d).
3 See also Document 2020-0839951C6, STEP 2020 Question 15 and page 21 of the T3 Trust Guide.
4 See paragraph 164(3)(d) and paragraphs 164(5)(d), (i), (j) and (k).
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