ARCHIVED - Guidelines for Accepting Late, amended or Revoked Elections
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NO.: IC92-1
DATE: March 18, 1992
SUBJECT: Guidelines for Accepting Late, amended or Revoked Elections
Notice to the reader:
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Introduction
1. This circular provides information and guidelines regarding certain legislation contained in Bill C-18 enacted December 17, 1991. The legislation gives discretion in respect of certain specified elections, to allow late and amended elections, or to revoke them for taxation years dating back to 1985.
2. This circular sets out the guidelines that Revenue Canada, Taxation will follow when applying the legislation. As well, this circular explains how taxpayers can have considered late, amended or revoked elections for years dating back to 1985, and describes the information required in support of such requests.
3. These are only guidelines. They are not intended to be exhaustive, and are not meant to restrict the spirit or intent of the legislation. As the Department gains experience in applying the legislation, these guidelines may be adjusted, as necessary.
The law
4. The law applies to elections made in 1985 and subsequent taxation years. These measures took effect on December 17, 1991. The elections to which the law applies will be listed in Part VI of the Income Tax Regulations.
5. A taxpayer or partnership may apply to have a late or amended election accepted or revoke an election.
6. When accepted by the Department, a late or amended election will be considered to have been made at the time it was required to be made. In the case of amended and revoked elections, the earlier election will be cancelled. To give effect to acceptance of a late, amended or revoked election the Department will reassess the affected returns for the taxation years in question back to 1985.
7. The taxpayer allowed a late, amended, or revoked election, is liable to a penalty of $100 for each complete month from the due date of the election to the date the taxpayer made the request. The maximum penalty is $8,000. This penalty is however subject to the new provision, related to the cancellation or waiver of all or a portion of penalties or interest. For details on waiving or cancelling penalties or interest, see Information Circular 92-2, Guidelines for the Cancellation and Waiver of Interest and Penalties.
8. Any assessments for the penalty described in 7 above, or any assessments or reassessments resulting from the Department's acceptance of a request, are subject to the general provisions concerning interest and refunds. Objections and appeals are limited to matters that give rise to the assessment.
Requests for late, amended or revoked elections
9. Each request will be considered on its own particular merits.
10. A request may be accepted in the following situations:
a) There have been tax consequences not intended by the taxpayer, and there is evidence that the taxpayer took reasonable steps to comply with the law. This could include, for example, the situation where the taxpayer obtained a bona fide valuation for a property, but after the Department's review the valuation was found to be incorrect.
b) The request arises from circumstances that are clearly beyond the taxpayer's control. Such extraordinary circumstances could include natural or man-made disasters such as flood or fire, civil disturbances or disruptions in services, such as a postal strike, a serious illness or accident, or serious emotional or mental distress such as death in the immediate family.
c) It is evident that the taxpayer acted on incorrect information given by the Department. This could include incorrect written replies to queries and errors in departmental publications.
d) The request results from what is clearly a mechanical error. This could include using the net book value amount when obviously the taxpayer intended to use the undepreciated capital cost or using an incorrect cost.
e) The subsequent accounting of the transactions by all parties is as if the election had been made, or had been made in a particular manner.
f) The taxpayer can demonstrate that he or she was not aware of the election provision, even though the taxpayer took a reasonable amount of care to comply with the law, and undertook remedial action as quickly as possible.
11. A request will not be accepted in the following instances:
a) It is reasonable to conclude that the taxpayer made the request for retroactive tax planning purposes. This could include taking advantage of changes to the law enacted after the due date of the election.
b) Adequate records do not exist to verify whether or not the request can be accepted.
c) It is reasonable to conclude that the taxpayer had to make the request because he or she was negligent or careless in complying with the law.
Application procedures
12. Taxpayers or their authorized representatives can make their requests in writing, to a district office or taxation centre serving their area.
13. To support a request, taxpayers should include all relevant facts including, where applicable:
a) the names, addresses, social insurance numbers, partnership numbers, and corporation numbers of all the taxpayers involved;
b) the dates and details of the transactions;
c) the date and details of the original election including an explanation of why the taxpayer is requesting to amend or revoke an election; and
d) details of a late-filed election, and an explanation of why it is being filed late.
14. The request should describe briefly the income tax implications of the acceptance or refusal of the request for all the parties involved.
15. If accepting the request involves changes to continuing tax account balances, taxpayers should submit appropriate revised schedules reflecting these changes. This could include, for example, capital cost allowance schedules, reserve account schedules, and Canadian exploration or development expense account schedules.
16. When the request involves more than one taxpayer, an agreement, signed by all parties, to the changes requested should be included with the request.
Exercise of the discretion
17. If taxpayers believe that the Department has not exercised its discretion in a reasonable and fair manner, then they may request, in writing, that the director of the appropriate district taxation office review the situation.
18. If you have any comments about this circular, please write to:
Revenue Canada Taxation
Taxation Programs Branch
875 Heron Road
Ottawa, Ontario
K1A 0L8
Appendix
List of affected elections New section 600 of the Income Tax Regulations will list the provisions of the Income Tax Act and Regulations in respect of which a taxpayer or a partnership can apply under subsection 220(3.2) of the Act to make a late or amended election, or to revoke an election.
The following is the list of the provisions and a brief description of the nature of the election:
Section 21 of the Act allows a taxpayer or partnership to elect to treat interest as a capital cost instead of an expense.
Subsections 13(4), 14(6)and 44(1) and (6) of the Act allow a taxpayer or partnership to elect to defer an income inclusion or the recognition of a capital gain when a replacement property is acquired for a property that was stolen, expropriated or destroyed, or for a former business property that was sold.
Paragraphs 66.7(7)(c), (d) and (e) and (8) (c), (d), and (e) of the Act allow a predecessor corporation and a successor corporation to elect to transfer the unused pools of resource expenses from the predecessor to the successor corporation.
Subsection 70(6.2) of the Act allows a taxpayer's legal representative to elect to have the rollover rules under subsection 70(6) not apply, thus causing the assets transferred to a taxpayer's spouse on the death of the taxpayer to be considered to be transferred at fair market value for tax purposes.
Subsection 70(9) of the Act allows a taxpayer's legal representative to elect an amount, within limits, as proceeds of disposition for farm property that is transferred to a child on the taxpayer's death.
Subsection 70(9.1) of the Act allows a spousal trust to elect an amount, within limits, as proceeds of disposition for farm property that is transferred from the trust to a child on the spouse's death.
Subsection 70(9.2) of the Act allows a taxpayer's legal representative to elect an amount, within limits, as proceeds of disposition for a share in a family farm corporation, or an interest in a family farm partnership that is transferred to a child on the taxpayer's death.
Subsection 70(9.3) of the Act allows a spousal trust to elect an amount, within limits, as proceeds of disposition for a share in a family farm corporation, or an interest in a family farm partnership that is transferred from the trust to a child on the spouse's death.
Subsection 72(2) of the Act permits a legal representative of a deceased taxpayer to elect to claim a deduction for certain reserves, provided that the amount so deducted is subsequently included in the income of the taxpayer's spouse or a spousal trust.
Subsection 73(1) of the Act allows a taxpayer to elect to have the rollover provisions in respect of an inter-vivos transfer of assets to a spouse or spousal trust not apply, thus causing the assets to be considered to be transferred at fair market value for tax purposes.
Subsection 104(14) of the Act allows a trust and its preferred beneficiaries to elect to have the income of the trust included in the income of the preferred beneficiaries, instead of being taxed as income of the trust.
Subsection 1103(1) of the Regulations allows a taxpayer or partnership to elect, for capital cost allowance purposes, to include in Class 1 all properties included in Classes 2 to 10 and Classes 11 and 12.
Subsection 1103(2) of the Regulations allows a taxpayer or partnership to elect, for capital cost allowance purposes, to include in Class 2, 4, or 17, all properties included in any other classes when Class 2, 4, or 17, is the class in which the chief depreciable properties of the taxpayer or partnership are included.
Subsection 1103(2d) of the Regulations allows a taxpayer or partnership to elect to defer a capital cost allowance recapture by transferring the property disposed of to a new class of which the taxpayer or partnership has property, when the property disposed of would have been a property of the new class if it had been acquired when the property of the new class was acquired.
- Date modified:
- 1995-01-01