Section 185

Subsection 185(1)

See Also

Magren Holdings Ltd. v. The Queen, 2021 TCC 42

no requirement to issue separate assessment for each election, and no remedy for inordinate time to issue assessments

The appellants engaged in transactions which were intended to result in the realization by them of substantial capital gains (resulting in additions to their capital dividend accounts (“CDAs”), that were immediately distributed by them), followed by the realization of largely offsetting capital losses later that day.

CRA issued nil assessments under Part I, beyond the normal reassessment period, that denied the capital gains and capital losses and reducing them to nil, and then issued notices of assessment pursuant to s. 185(1) on the basis that the capital dividends declared by the appellants were in fact excess dividends subject to Part III tax. In rejecting the appellants’ arguments that the Part III assessments were invalid because there was one assessment for multiple purported capital dividends and the assessments had not been issued “with all due dispatch,” Smith J stated (at paras 110, 111, 113 and 137):

I agree with the Respondent that the requirement that the Minister “examine each election” and “assess the tax, if any”, as required by subsection 185(1) must be considered in light of subsections 152(3) and 152(8) and section 166.

In particular, I find that the provision, as it pertains to the obligation to “examine each election” is directory at best (and not mandatory) and that there has been no prejudice to the Appellants: Kyte v. Canada, 1996 CanLII 3939 (FCA).

…I agree with the Respondent that the language of subsection 185(1) does preclude or exclude the possibility that the Minister may review more than one election or issue only one assessment dealing with multiple elections – particularly when those elections relate to dividends that have been declared and paid by the corporation in the same taxation year. …

I find that the Court is bound by the decisions of the Federal Court of Appeal in Carter, and Ginsberg, supra and that even if the Court was of the view that the assessment process involved an “inordinate” amount of time, as suggested by the Appellants, “there is no power in the court to vacate an assessment on the grounds that the Minister did not act with due dispatch.” Had Parliament intended to give the Court that power, it would have said so in clear terms but it has not done so.

Words and Phrases
with all due dispatch
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 185 - Subsection 185(3) Part III tax assessments of distributions of gains that were denied outside the Part I tax normal reassessment period were not statute-barred 314
Tax Topics - General Concepts - Ownership acquisition of income fund units to be held for a few days before their redemption did not represent an acquisition of beneficial ownership 549
Tax Topics - General Concepts - Sham transactions did not result in real capital losses 306
Tax Topics - Income Tax Act - Section 184 - Subsection 184(3) election was not available where a CDA sham 365
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) no CDA addition where capital gains were not real 373

Subsection 185(3)

See Also

Magren Holdings Ltd. v. The Queen, 2021 TCC 42

Part III tax assessments of distributions of gains that were denied outside the Part I tax normal reassessment period were not statute-barred

The appellants engaged in transactions which were intended to result in the realization by them of substantial capital gains (resulting in additions to their capital dividend accounts (“CDAs”), that were immediately distributed by them), followed by the realization of largely offsetting capital losses later that day.

CRA issued nil assessments under Part I, beyond the normal reassessment period, that denied the capital gains and capital losses and reducing them to nil, and then issued notices of assessment pursuant to s. 185(1) on the basis that the capital dividends declared by the appellants were in fact excess dividends subject to Part III tax. In rejecting the appellants' arguments that the Part III assessments were statute-barred, Smith J stated (at paras. 93-94):

… The Appellants cannot argue that the nil reassessments are statute-barred and then ask the Court to extrapolate from that and conclude that the Part III Reassessments that are the subject matter of these appeals are also statute-barred and “therefore invalid and without legal force.” These arguments must be rejected.

Moreover, … nothing prevents the Court … from reviewing the validity of transactions that are alleged to have triggered the subject capital gains and capital losses and that are alleged to form the basis for the additions made to the capital dividend accounts.

Before going on to find that the purported acquisition by the appellants of trust units that had a high tax basis (whose alleged disposition generated the capital losses) were a sham, he stated (at para. 95):

If I am wrong in so concluding, then I find that the Part I Reassessments were not statute-barred and that the Minister was entitled to issue them because … the Appellants had made a misrepresentation that was attributable to neglect, carelessness or wilful default or fraud, as required by subparagraph 152(4)(a)(i) of the ITA.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 185 - Subsection 185(1) no requirement to issue separate assessment for each election, and no remedy for inordinate time to issue assessments 396
Tax Topics - General Concepts - Ownership acquisition of income fund units to be held for a few days before their redemption did not represent an acquisition of beneficial ownership 549
Tax Topics - General Concepts - Sham transactions did not result in real capital losses 306
Tax Topics - Income Tax Act - Section 184 - Subsection 184(3) election was not available where a CDA sham 365
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) no CDA addition where capital gains were not real 373

Administrative Policy

6 October 2017 APFF Roundtable Q. 10, 2017-0709081C6 F - Election to treat excess as separate dividend

normal reassessment period starts running from date of Pt III assessment

If following, a request for confirmation by CRA of the CDA balance, a capital dividend is paid based on such confirmation, is an assessment of the capital dividend under Part III statute-barred? CRA responded:

[S]ubsection 185(3) provides, inter alia, that subsection 152(4) applies to Part III, with such modifications as the circumstances require. ...

Consequently, where a situation does not involve a misrepresentation of the facts through negligence, carelessness or willful default or fraud, and where there has been no waiver in the prescribed form, the Minister would not be able to issue a notice of reassessment in respect of tax under Part III after the normal reassessment period as defined in subsection 152(3.1). This normal reassessment period would be calculated by taking into account the date of the first notice of assessment issued in respect of the Part III tax, if any, in respect of the election made under subsection 83(2).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 184 - Subsection 184(3) elected-upon amount is retroactively deemed as income even if it is still unpaid 279