Section 18.21

No ability to accrue unused excess capacity (p. 17)

• S. 18.21(2) reflects an intention that a taxpayer subject to the group ratio cannot accrue excess capacity for carryforward as cumulative unused excess capacity.

Zero tolerance for errors (p. 39)

• Under s. 18.21(2), if an election is made that allocates an amount greater than the specified limits, the allocated group ratio amount will be deemed to be nil – a potentially punitive result for what might be a small error.

Effective transfer of excess capacity to or from group trusts (p.10)

Unlike the s. 18.2 rules, under which there is no ability for trusts within a group to transfer or receive excess capacity, the mechanics of the s. 18.21 rules effectively permit the transfer of excess capacity to or from trusts within the Canadian group (although the s. 18.21 rules are unavailable where a group member is a mutual fund trust).

Potential difficulties in annually assessing whether the election should be made or is practicable

• Application of the group ratio regime requires an annual election and, therefore, annual consideration as to whether it would be beneficial. This regime “requires information that may not easily be available to the Canadian group members, particularly in large conglomerate or private equity structures.”

No requirement to determine “excess capacity” (p. 9)

Unlike [under s. 18.2], there is no requirement to determine the “excess capacity” for any particular group member and then separately transfer excess capacity of one particular group member to another. Rather, the total amount of IFE that may be deducted for the group (i.e., the [allocated group ratio amount] AGRA) is determined and as part of the joint election is merely allocated out to each member in that election itself. No group member should have restricted IFE to the extent that the AGRA allocated to that member is less than that member’s net IFE. Part of the reason for this rather streamlined approach is that if an election under subsection 18.21(3) is made for a year, unused excess capacity for each member is deemed to be nil for the year. However, restricted IFE, if any, may be carried forward. Further, if the total AGRA otherwise exceeds the net IFE of the group for the year, any restricted IFE from a prior year may be applied in the year (up to the amount of that excess).