INTERPRETATION AND ADMINISTRATIVE BULLETIN CONCERNING THE LAWS AND REGULATIONS Income Tax IMP. 1056.4-1/R1 Late, amended or revoked election Date of publication: April 28, 2006 Reference(s): Taxation Act (R.S.Q., c. I-3), ss. 1056.4, 1056.4.1, 1056.6, 1056.7 and 1056.8 An Act respecting the Ministère du Revenu (R.S.Q., c. M-31), ss. 93.1.8 and 93.1.12 Regulation respecting the Taxation Act (R.R.Q., 1981, c. I-3, r.1, as amended), s. 1056.4R1 This bulletin supersedes bulletin IMP. 1056.4-1 dated December 30, 1998. The purpose of this bulletin is to determine the circumstances in which the Ministère du Revenu du Québec will extend the time for making a prescribed election or grant permission to amend or revoke such an election. This bulletin also explains how a taxpayer or a partnership can apply to make a prescribed election after the due time, or to amend or revoke a prescribed election, and describes the information that must be provided in support of the application. Since January 1, 2005, an application to make a prescribed election after the due time or to amend or revoke a prescribed election must be filed on or before the day that is ten calendar years after the end of the taxation year or fiscal period in which an election was required to be filed. APPLICATION OF THE ACT 1. A taxpayer or a partnership may apply to have the time for making a prescribed election extended or to amend or revoke a prescribed election made previously. Prescribed elections are those specified in section 1056.4R1 of the Regulation respecting the Taxation Act (RTA). They are listed in the appendix to this bulletin. 2. If the application is granted, the late or amended election is deemed to have been made in the form and within the time provided for the election. If the Minister allows an election to be revoked or amended, the previous election is deemed never to have been made. A new assessment is made and the tax, interest and penalties are again determined for any taxation year to take into account the election or the amended or revoked election, even if the normal reassessment period for the taxation year has expired.
3. The taxpayer or partnership is liable to a penalty equal to $100 for each complete month from the day on or before which the election was required to be made to the day on which the application is made. The maximum penalty is $5,000. A notice of assessment in this respect is sent to the taxpayer or partnership. 4. All assessments and reassessments referred to in points 2 and 3 of this bulletin are subject to the general rules concerning interest and refunds. 5. Notices of objection and appeals respecting these assessments are limited to the matters that gave rise to the assessment. This restriction does not apply where an earlier assessment was already the subject of an objection or appeal or where the time for notifying a notice of objection or for filing an appeal in respect of an earlier assessment had not yet expired. APPLICATION FOR A LATE, AMENDED OR REVOKED ELECTION 6. An application to make a prescribed election after the due time or to amend or revoke a prescribed election is granted at the discretion of the Ministère, and each application is considered on the particular facts of the situation. 7. The Ministère may grant an application in the following situations: (a) A situation has resulted in tax consequences not intended by the taxpayer, and it can be shown that the taxpayer took reasonable steps to comply with the Taxation Act (TA). This could be the case, for example, where the taxpayer obtained a bona fide valuation for a property but, after the Ministère s review, the valuation was found to be incorrect. (b) The application stems from circumstances that are clearly beyond the taxpayer s control. Extraordinary circumstances may include natural or man-made disasters such as a flood or fire, civil disturbances or disruptions in services (such as a postal strike), a serious illness or accident, serious emotional or mental distress, or the death of a member of the immediate family. (c) It is evident that the taxpayer acted on incorrect information provided by the Ministère, such as an incorrect written reply to a request for information, or an error in a publication of the Ministère. (d) The application stems from a situation that is clearly the result of a mechanical error. This would be the case, for example, if the taxpayer used the net book value when he or she obviously intended to use the undepreciated capital cost, or if the taxpayer mistakenly used a certain cost in calculations. (e) The subsequent accounting of the transactions was done by all parties 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 TA, and undertook remedial action promptly. It must be determined in this case whether the taxpayer s actions are those of a reasonably prudent and well-informed person.
8. An application will not be granted in the following instances: (a) It is reasonable to conclude that the taxpayer made the application for the purposes of retroactive tax planning. This would be the case, for example, if the taxpayer wishes to take advantage of legislative amendments enacted after the time for making the election has expired. (b) The existing records do not permit the Ministère to verify the reasons for the application. (c) It is reasonable to conclude that the taxpayer had to make an application because he or she was negligent or careless in complying with the TA. PROCEDURE FOR MAKING AN APPLICATION 9. Taxpayers and partnerships, or their authorized representatives, can make their applications in writing and should give all relevant information, including, where applicable, (a) the dates and details of the transactions concerned; (b) the dates and details of the original election, including an explanation of why the application to amend or revoke the election is being made; (c) in the case of a late election, the details of the election and the reasons it is being made after the due time. 10. If granting the application involves changes to continuing tax account balances, the taxpayer or partnership, as applicable, must submit the appropriate revised schedules reflecting these changes. The schedules may include, for example, capital cost allowance schedules, reserve account schedules, and Canadian exploration or development expense account schedules. 11. When an application involves more than one taxpayer or more than one partnership, a document in which all parties give their consent to the changes requested must be enclosed. PENALTIES 12. The penalty incurred by a taxpayer or partnership whose application is granted is calculated according to the number of complete months from the day on or before which the election was required to be made to the day on which the application is made. 13. Where there is no set time by which the election is required to be made (this is the case where the TA indicates that an election is made in the taxpayer s fiscal return for a taxation year), the penalty must be calculated according to the filing-due date for the fiscal return, even if the return was filed with the Ministère before that date. 14. The penalty is subject to the provisions of section 94.1 of the Act respecting the Ministère du Revenu, which allows the Minister to waive or cancel interest or penalties, in whole or in part. For further information on the cancellation of penalties, refer to the current version of bulletin LMR. 94.1-1.
APPENDIX For the purposes of section 1056.4 of the TA, the prescribed elections are listed in section 1056.4R1 of the RTA. Below you will find a list of the election provisions and a brief description of the elections. Other elections may be added to this list as they become prescribed. It should be noted that certain elections may be made only for particular taxation years. Subsection 2 of section 96 and sections 110.1, 279, 280.3, 284 and 286.1 of the TA allow a taxpayer or partnership to elect to defer inclusion in income of a recapture of capital cost allowance or a capital gain, as applicable, where a property is acquired to replace a former property, where a property begins to be used to earn income, or where a property used to earn income becomes a principal residence. Section 101.6 of the TA allows a taxpayer or partnership to elect to reduce the capital cost of a depreciable property by the amount of an inducement received in respect of the property, so that the inducement is not included in computing the taxpayer s or partnership s income under paragraph w of section 87 of the TA. Sections 180 to 182 of the TA allow a taxpayer or partnership to elect to treat interest and other costs in respect of borrowed money as a capital cost, rather than as expenses deductible in computing income. Section 257.2 of the TA allows a taxpayer or partnership to elect to reduce the adjusted cost base of a property, other than depreciable property, by the amount of an inducement received in respect of the property, instead of including the amount of the inducement in computing income. Section 299 of the TA allows a taxpayer or partnership to elect to be deemed to have disposed of a debt that is a bad debt, or a share of a corporation that is insolvent or has become a bankrupt, for proceeds equal to nil. The taxpayer or partnership can thus claim a capital loss. Paragraphs c, d and e of sections 418.23 and 418.24 of the TA allow a predecessor corporation and a successor corporation to elect to transfer unused resource expenses from the predecessor to the successor corporation. Section 442 of the TA allows the legal representative of a deceased individual to elect that the rollover rules under section 440 of the TA do not apply, thus causing the property transferred on the individual s death to the individual s spouse or to a spousal trust to be considered to be transferred at fair market value. Section 444 of the TA allows the legal representative of a deceased individual to elect an amount, within certain limits, as the proceeds of disposition of farm property, a share in a family farm
corporation or an interest in a family farm partnership, where the property, share or interest is transferred to a child of the individual. Section 450 of the TA allows a spousal trust to elect an amount, within certain limits, as the proceeds of disposition of farm property, a share in a family farm corporation or an interest in a family farm partnership, where the property, share or interest is transferred to a child on the spouse s death. Section 453 of the TA allows the legal representative of a deceased individual and the individual s beneficiary, where the latter is the individual s spouse or a spousal trust, to elect to claim a deduction for certain reserves, provided the amount so deducted is subsequently included in the beneficiary s income. Section 454 of the TA allows a taxpayer to elect that the rollover rules respecting an inter vivos transfer of property to a spouse or a spousal trust do not apply, thus causing the property to be considered to be transferred at fair market value. Section 477 of the TA allows a taxpayer or partnership to make various elections where the taxpayer or partnership acquires, as a dividend in kind or a benefit to be included in computing income under section 111 of the TA, indemnities issued by a foreign government for expropriated foreign property. Section 485.2 of the TA allows a parent corporation to make an election, at the time of winding up a Canadian subsidiary, under which an obligation existing between the parent and the subsidiary to pay an amount is settled or extinguished by paying an amount equal to the cost amount of this obligation, as defined in that section. Section 485.21 of the TA allows a parent corporation to make an election, at the time of winding up a Canadian subsidiary, under which an obligation existing between the parent and the subsidiary to pay an amount is settled or extinguished by paying an amount equal to the cost amount of the obligation, as defined in that section. Section 499 of the TA allows a taxpayer to elect to include in computing the taxpayer s income the taxable dividends received by the taxpayer s spouse, where the dividends reduce the amount respecting a dependent spouse that the taxpayer may claim in computing personal tax credits. Section 502 of the TA allows a private corporation to make an election under which a dividend payable on a share of its capital stock is a capital dividend. Section 578.1 of the TA allows a taxpayer to elect not to include any amount in computing income with respect to the value of shares of the capital stock of a corporation that is not resident in Canada, where the shares were distributed to the taxpayer by a corporation that is not resident in Canada and of which the taxpayer is a shareholder.
Section 656.4 of the TA allows a trust that has at least one exempt beneficiary to elect that the general rule provided for in section 653 and under which trust property is deemed to be disposed of every 21 years does not apply. Section 659 of the TA allows a trust and a preferred beneficiary to elect to have a portion of the trust s accumulating income included in the beneficiary s income before it is paid to the beneficiary. Section 737.8 of the TA allows an individual to include in computing taxable income for a taxation year all or such portion of the individual s accumulated averaging amount at the end of the preceding taxation year as the individual specifies. Paragraph d of section 785.2 of the TA allows an individual (other than a trust) to elect that certain property that is exempt from the deemed disposition rule provided for in paragraph b of that section be deemed to have been disposed of for proceeds of disposition equal to the fair market value of the property. Section 851.28 of the TA allows an inter vivos trust to elect to allocate its income to members of the congregation in accordance with an allocation formula provided for in section 851.30 of the TA. Section 935.7 of the TA allows a deceased individual s legal representative and the individual s spouse to elect not to include, in computing the individual s income for the year of death, the amounts the individual received from an RRSP under a home ownership plan and had not repaid to an RRSP. These amounts are deemed to have been received by the spouse under a home ownership plan. Section 1054 of the TA allows the succession of a deceased taxpayer to amend the taxpayer s fiscal return filed for the year of death, in order to transfer to the taxpayer a portion of the capital losses or terminal losses sustained on the disposition of capital property in the succession s first taxation year. Section 130R56 of the RTA allows a taxpayer or partnership to elect, for purposes of capital cost allowance, to include in Class 1 all properties included in Classes 2 to 10, 11 and 12 of Schedule B of the RTA. Section 130R57 of the RTA allows a taxpayer or partnership to elect, for purposes of capital cost allowance, to include in Class 2, 4 or 17 of Schedule B of the RTA all properties included in any other class, where the chief depreciable properties of the taxpayer or partnership are included in Class 2, 4 or 17. Section 130R61 of the RTA allows a taxpayer or partnership to elect to defer the recapture of capital cost allowance by transferring the property disposed of to a new class in which the taxpayer or partnership has property, where the property disposed of would have been property of the new class if it had been acquired at the time the property of the new class was acquired.
Finally, section 1056.4.1 of the TA provides that, for the purposes of section 1056.4 of the TA, the following elections are deemed to be prescribed elections: a designation in the form prescribed for the purposes of subparagraph j of the first paragraph of section 485.3 or any of sections 485.6 to 485.11 and 485.40 of the TA, as part of the procedure for debt forgiveness; an allocation made by a trust under section 1121.12 of the TA, so that a particular amount is considered to be additional income of the trust.