9 October 2025 APFF Roundtable Q. 13, 2025-1071541C6 - Irrégularité dans le calcul des pénalités lorsqu’un choix doit être produit

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83(4), 85(8), 93(6), 96,(6), 131(1.3) and 162(1); Sections 27 and 28 of the Interpretation Act, R.S.C., 1985, c. I-21

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This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.

Principal Issues: Computation of the number of months, and parts of a month where relevant, in a period, for purposes of the Election late filing penalty provisions.

Position: In computing the number of months, and parts of a month where relevant, in a period, the filing due date should be excluded. The irregularity noted is no longer relevant.

Reasons: Statutory interpretation; textual, contextual and purposive interpretation of the provisions.

FEDERAL TAX ROUNDTABLE OCTOBER 9, 2025
2025 APFF CONFERENCE

13. Anomaly in computing penalties when an election must be filed

The technical interpretation "Penalty for filed elections and returns", dated March 26, 1986 (footnote 1) (the "1986 Interpretation") raises an anomaly in the calculation of penalties when an election referred to in subsection 85(1) must be filed. That anomaly stems from the fact that the late-filing penalty is calculated based on the "number of months or parts of months", which creates unfairness in certain situations.

For example, a corporation with a November 30, 202X year-end that made an election under subsection 85(1) on June 25, 202X will have until May 31, 202X+1 to file its election. If the corporation files its election on June 30, 202X+1, one month late, it will have to pay a one-month penalty.

On the other hand, a corporation with an August 31, 202X year-end that filed an election under subsection 85(1) on June 25, 202X will have until February 28, 202X+1 to file its election. If the corporation files its election on March 28/29/30/31, 202X+1, it will have to pay a two-month penalty. This is illogical, as it is still only one month late, but is paying for two months.

In the 1986 interpretation, it was stated that in view of this perceived anomaly, the memorandum was sent to Current Amendments for their consideration.

Questions to the CRA

What has happened to date? Has the issue been analyzed and, if so, what avenues are being considered by the CRA and what is its position on the matter?

CRA Response

Generally, the penalty provided for in subsection 85(8) applies where the election referred to in subsection 85(1) was not made on or before the day on or before which it was required to be made under subsection 85(6). The amount of the penalty depends, among other things, “for each month or part of a month during the period commencing with the day on or before which the election is required by subsection 85(6) to be made and ending on the day the election or amended election is made”, as well as the "number of months each of which is a month all or part of which is” in that same period.

Under the second proposed scenario, we confirm that the CRA's current practice is to apply the equivalent of only one "penalty month". We agree with this position and are of the view that the analysis of the provisions listed above favours an interpretation whereby the calculation of the number of "each month or a part of a month" in the period must exclude the date on which the election must be made, but include the date on which the election is made.

Thus, where an election must be made no later than the last day of a particular calendar month, the month in question ends on the last day of the subsequent calendar month. It follows that in the situation submitted, the late election made on March 28, 29, 30 or 31, 202X+1 will result in a penalty equivalent to only one "month or part of a month".

Simon Morin
October 9, 2025
2025-107154

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 CANADA REVENUE AGENCY, Technical Interpretation 85-243, March 26, 1986.

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Text of Severed Letter

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: Computation of the number of months, and parts of a month where relevant, in a period, for purposes of the Election late filing penalty provisions.

Position: In computing the number of months, and parts of a month where relevant, in a period, the filing due date should be excluded. The irregularity noted is no longer relevant.

Reasons: Statutory interpretation; textual, contextual and purposive interpretation of the provisions.

TABLE RONDE SUR LA FISCALITÉ FÉDÉRALE DU 9 OCTOBRE 2025

APFF - CONGRÈS 2025

13. Irrégularité dans le calcul des pénalités lorsqu’un choix doit être produit

L’interprétation technique «Penalty for filed elections and returns», datée du 26 mars 1986 (footnote 1) (l’«Interprétation de 1986») soulève une irrégularité dans le calcul des pénalités lorsqu’un choix visé au paragraphe 85(1) L.I.R. doit être produit. Cette irrégularité découle du fait que la pénalité pour choix tardifs est calculée en fonction du «nombre de mois ou de parties de mois», ce qui crée des injustices dans certaines situations.

Par exemple, une société qui a une fin d’année au 30 novembre 202X et qui a fait un choix visé au paragraphe 85(1) L.I.R. au 25 juin 202X aura jusqu’au 31 mai 202X+1 pour produire son choix. Si la société produit son choix le 30 juin 202X+1, soit un mois en retard, elle devra payer un mois de pénalité.

D’un autre côté, une société qui a une fin d’année au 31 août 202X et qui a fait un choix visé au paragraphe 85(1) L.I.R. au 25 juin 202X aura jusqu’au 28 février 202X+1 pour produire son choix. Or, si la société produit son choix le 28/29/30/31 mars 202X+1, elle devra payer deux mois de pénalité. Ceci est illogique, car elle n’a toujours qu’un mois de retard, mais paye pour deux mois.

Dans l’Interprétation de 1986, il a été indiqué que face à cette anomalie perçue, le mémorandum a été envoyé à Current Amendments pour leur considération.

Questions à l’ARC

Qu’en est-il à ce jour? Est-ce que l’enjeu a été analysé et, si oui, quelles sont les voies de solution considérées par l’ARC et sa position par rapport à ce sujet?

Réponse de l’ARC

De façon générale, la pénalité prévue au paragraphe 85(8) L.I.R. s’applique lorsque le choix visé au paragraphe 85(1) L.I.R. n’a pas été fait au plus tard à la date à laquelle il devait être fait aux termes du paragraphe 85(6) L.I.R. Le montant de la pénalité dépend, notamment, du nombre de «mois ou partie de mois de la période commençant à la date à laquelle le choix doit être fait, au plus tard, aux termes du paragraphe 85(6) L.I.R., et se terminant à la date à laquelle le choix ou choix modifié est fait», ainsi que du «nombre de mois tombant, en tout ou en partie», dans cette même période.

Dans le cadre du deuxième scénario proposé, nous confirmons que les pratiques actuelles de l’ARC consistent à n’appliquer l’équivalent que d’un seul « mois de pénalité ». Nous partageons cette position et sommes d’avis que l’analyse des dispositions énumérées ci-dessus favorise une interprétation selon laquelle le calcul du nombre de « mois ou partie de mois » de la période doit exclure la date à laquelle le choix doit être fait, mais inclure la date à laquelle le choix est fait. Ainsi, lorsqu’un choix doit être fait au plus tard le dernier jour d’un mois civil donné, alors le mois en question se termine le dernier jour du mois civil subséquent. Il s’ensuit que dans la situation soumise, le choix fait en retard en date du 28, 29, 30 ou 31 mars 202X+1 entrainera une pénalité n’équivalant qu’à un seul «mois ou partie de mois».

Simon Morin
Le 9 octobre 2025
2025-107154

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 AGENCE DU REVENU DU CANADA, interprétation technique 85-243, 26 mars 1986.

Summaries

Summary Under

Tax Topics - Income Tax Act - Section 85 - Subsection 85(8)

there is only one penalty month if an election due on February 28 was filed on or before March 31 of the following month

A corporation, whose deadline for filing an s. 85(1) election was the last day of February (February 28), did not file the election until March 28 (or 31) of the next month. Based on 26 March 1986 RCT 85-243 which, after referring to the Interpretation Act, stated that “[in] calculat[ing] from a particular date a month is that period of time from that date to the day before the same date in the next month on the calendar”, the number of “each month or part of a month” from February 28 to the March 28 (or 31) filing date for purposes of computing the s. 85(8) penalty would be two, i.e., the period to March 27 would constitute one complete month, and the period consisting of March 28 (or March 28 to March 31) would be a part of a month.

CRA indicated that the above approach did not represent its current practice, and the penalty would be based on there only being one penalty month. After referring to ss. 85(6) and 85(8), it stated:

[T]he analysis of the provisions listed above favours an interpretation whereby the calculation of the number of "each month or a part of a month" in the period must exclude the date on which the election must be made, but include the date on which the election is made.

Thus, where an election must be made no later than the last day of a particular calendar month, the month in question ends on the last day of the subsequent calendar month. It follows that in the situation submitted, the late election made on March 28, 29, 30 or 31, 202X+1 will result in a penalty equivalent to only one "month or part of a month".

Summary Under

Tax Topics - Statutory Interpretation - Interpretation Act - Section 28

February 28 to March 31 is one month

A corporation, whose deadline for filing an s. 85(1) election was the last day of February (February 28), did not file the election until March 28 (or 31) of the next month. RCT 85-243, after referring to the Interpretation Act, stated that “[in] calculat[ing] from a particular date a month is that period of time from that date to the day before the same date in the next month on the calendar”. On this basis, the number of “each month or part of a month” from February 28 to the March 28 (or 31) filing date for purposes of computing the s. 85(8) penalty would be two, i.e., the period to March 27 would constitute one complete month, and the period consisting of March 28 (or March 28 to March 31) would be a part of a month.

CRA indicated that the above approach did not represent its current practice, and the penalty would be based on there only being one penalty month. After referring to ss. 85(6) and 85(8), it stated:

[T]he analysis of the provisions listed above favours an interpretation whereby the calculation of the number of "each month or a part of a month" in the period must exclude the date on which the election must be made, but include the date on which the election is made.

Thus, where an election must be made no later than the last day of a particular calendar month, the month in question ends on the last day of the subsequent calendar month.

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9 October 2025 APFF Roundtable Q. 13, 2025-1071541C6 - Irrégularité dans le calcul des pénalités lorsqu’un choix doit être produit

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