24 June 1998 External T.I. 9814835 - NEW LATE ELECTION REQUIRED FOR ADD’L PROP FOR 110.6

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 Department.

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

Principal Issues: whether a capital gains election can be amended to add property not previously elected upon

Position: no

Reasons: the capital gains election is made on a property-by-property basis and 110.6(27) which provides for an amendment to an election also refers to "an election in respect of a property or business" - in addition, in determining whether an amendment is possible 110.6(28) refers to the value of the original property elected upon -in the context of the limits and wording of 110.6(19)-(30), an election relates only to the property or business (ece) specified in the election - no substitutions or additions

XXXXXXXXXX 981483
A. Humenuk

Attention: XXXXXXXXXX

June 24, 1998

Dear Sir:

Re: Capital Gains Election

This is in reply to your letter of May 29, 1998, concerning an individual’s ability to file a capital gains election in respect of property that was not included in any capital gains election filed previously by that individual.

In the situation you describe, an individual filed a capital gains election in respect of several properties on time, that is, before the individual’s balance-due date for the 1994 taxation year, but was unable to deduct an amount under section 110.6 of the Income Tax Act (the "Act") because the individual’s cumulative net investment loss as of December 31, 1994, was greater than the capital gains resulting from the election. On December 21, 1997, the individual submitted a request to amend the original election to include an accrued gain on an additional property that was not used in making the original election. A payment of the estimated amount of penalty was submitted with that request.

You are of the view that this request constitutes an amendment to the first election and that it should not be treated as a new election. If the original election can be amended in this manner, the 1994 return could be adjusted to reflect the additional capital gains and capital gains deduction, because the amendment would have been filed within the time specified in subsection 110.6(27) of the Act. However, if the request is considered to be a new election, then the request is properly denied because the time specified in subsection 110.6(26) of the Act for filing a late election had already passed before the request was made. You ask for our views on this matter.

The capital gains deduction for property other than qualified farm property and qualified small business corporation shares was repealed by chapter 3 of the 1995 Statutes of Canada for 1996 and subsequent taxation years. In order to allow an individual who had an accrued gain on capital property as of February 22, 1994, a final opportunity to shelter such a gain, the Act was also amended to allow an individual to voluntarily include the accrued capital gain in respect of a particular property in income for the 1994 taxation year (or 1995 if the gain related to a business, the fiscal period of which included February 22, 1994 and ended in 1995) and claim the capital gains deduction thereon.

It should be noted that an election under subsection 110.6(19) is made on a property-by-property basis. The ability to amend a capital gains election under subsection 110.6(27) of the Act is likewise limited to the property or eligible capital property of a business which was the subject of the original election. Subsection 110.6(27) of the Act permits an individual to amend the election to increase or decrease the amount originally designated as the proceeds of disposition for the property or eligible capital property specified in the election to the extent permitted by subsections 110.6(20) and (28) of the Act.

Accordingly, in order to make an election in respect of property that was not included in any preceding capital gains election, an individual would have had to file the additional election within the time specified in subsection 110.6(26) of the Act. Since the time specified in subsection 110.6(26) of the Act is two years from the date the election was originally due to be filed, a capital gains election which was filed on December 21, 1997, in respect of property that was not included in any preceding election, would be invalid.

We trust these comments have clarified our position in this matter.

Yours truly,

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch