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.
Dear Sirs:
This is in reply to your letter of April 14, 1986 concerning the filing of elections in accordance with section 85 of the Income Tax Act (the "Act").
You pointed out that in some instances, in filing elections under subsection 85(1) with respect to transfers of shares of a Canadian-controlled private corporation to a taxable Canadian corporation, your clients have elected an amount equal to the paid-up capital of the transferred shares, this amount being less than the valuation-day value. It is your opinion that the adjusted cost base would be the valuation-day value as adjusted by section 53, notwithstanding that the taxpayer elected a lower amount, and therefore the elected amount would be deemed by paragraph 85(1)(c.1) to be equal to the valuation-day value. Your opinion is based on the assumption that the fair market value of the shares at the time of transfer was no less than the valuation-day value.
We do not agree with your opinion. The amount elected upon is deemed to be the taxpayer's proceeds of disposition of the property, except to the extent the elected amount is deemed to be a greater or lesser amount. Assuming that an individual has not elected pursuant to subsection 26(7) of the Income Tax Application Rules, 1971 (the "ITAR") his cost of a non-depreciable capital property is determined pursuant to subsection 26(3) of the ITAR. Thus if the actual cost of a share was equal to $1, and this was the amount elected upon for purposes of paragraph 85(1)(a), then the individual's deemed cost pursuant to subsection 26(3) of the ITAR will be $1, provided that there are no amounts determined under subparagraphs 26(3)(c)(ii) to (v) of the ITAR. The amount determined as the lower limit for the elected amount pursuant to paragraph 85(1)(c.1) will be $1, which is the cost of the share as determined under subsection 26(3) of the ITAR. Therefore paragraph 85(1)(c.1) of the Act will not result in an adjustment to the $1 amount agreed upon.
Paragraph 85(7.1)(b) permits an election to be amended where in the opinion of the Minister such an amendment would be just and equitable. Requests made on behalf of specific taxpayers pursuant to paragraph 85(7.1)(b) should be directed to the relevant district office for consideration. Each request must be made in the prescribed form and should include a submission stating the taxpayer's reasons for believing that the amended election should be accepted. Paragraph 85(7.1)(d) of the Act requires that an estimate of the applicable penalty as described in subsection 85(8) must be paid at the time the amended election is submitted.
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© Her Majesty the Queen in Right of Canada, 1986
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© Sa Majesté la Reine du Chef du Canada, 1986
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