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: Can a subsection 185.1(2) election be filed late when an appeal of the notice of assessment in respect of the Part III.1 tax is unsuccessful.
Position: No.
Reasons: The subsection 185.1(2) election is not prescribed in Regulation 600 for the purposes of subsection 220(3.2).
XXXXXXXXXX
2010-038380
Richard Aronoff
Attention: XXXXXXXXXX 613-941-7239
December 23, 2010
Dear XXXXXXXXXX :
Re: Time Limit to File a Subsection 185.1(2) Election
This is in reply to your email of October 15, 2010 to Lindsay Frank concerning the time limit within which a taxpayer can file a subsection 185.1(2) election.
Pursuant to subsection 185.1(2), a corporation can file an election to treat all or part of an excessive eligible dividend designation (EEDD) as an ordinary taxable dividend. This is provided that the EEDD did not result from the application of the anti-avoidance rule in the definition to EEDD in paragraph (c) of subsection 89(1), and all of the shareholders who received or were entitled to receive the dividend concur with the election pursuant to subsection 185.1(3).
The eligible dividend that a corporation pays in respect of which it has made an EEDD may be to shareholders with whom the corporation does not deal at arm's length. Under subsection 185.2(3), where the corporation is a Canadian-controlled private corporation or a deposit insurance corporation, the shareholder is jointly and severally liable with the corporation to pay a portion of the corporation's Part III.1 tax. The amount of the tax is the shareholder's pro-rata portion of the eligible dividend that the shareholder receives.
You refer to a fact situation where a taxpayer is assessed for Part III.1 tax and, were a subsection 185.1(2) election to be filed, it would need to be filed on or before 90 days from the mailing of the notice of assessment in respect of the Part III.1 tax. In this fact situation, the taxpayer filed a notice of objection within the time stipulated in subparagraph 165(1)(a)(ii).
At issue is whether, upon an adverse determination of the objection, the taxpayer can then file a subsection 185.1(2) election. The subsection 185.1(2) election is not prescribed in Regulation 600 to permit the Minister to extend the time for making the election under subsection 220(3.2). Consequently, the election needs to be filed within the deadline provided for in subsection 185.1(2) regardless of whether or not the taxpayer appeals the assessment.
Should you have any queries or require additional information in regard to this matter, please do not hesitate to contact Richard Aronoff at the telephone number provided at the outset of this letter.
Yours truly,
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Income Tax Rulings Directorate
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