Principal Issues: In document No. 2010-037725, we concluded that, in the particular situation, in order to avoid a May 31, 20-A year-end, Company B had to file the election not to be a CCPC under subsection 89(11) at the latest on November 30, 20-A. Whether the election under subsection 89(11) should be filed at the latest on November 15, 20-A.
Position: In the particular situation, the election not to be a CCPC under subsection 89(11) must be filed at the latest on November 30, 20-A in order to avoid a May 31, 20-A year-end.
Reasons: Application of the Act.
XXXXXXXXXX 2011-039628 J. Lafrenière (613) 941-2956 May 9, 2011
Dear Sir:
Re: Filing deadline of an election under subsection 89(11) of the Income Tax Act
This is in reply to your emails dated February 16, 2011 in which you requested our comments on the filing deadline of an election under subsection 89(11) of the Income Tax Act (hereinafter the "Act") in a particular situation (hereinafter the "Particular Situation").
Unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act.
1. Facts
In your emails, you draw our attention to the Particular Situation described in the Technical Interpretation No. 2010-037725 in which the main facts were as follows:
a) On May 15, 20-A, Company A, a Canadian-controlled private corporation (hereinafter "CCPC"), acquires all of the issued and outstanding shares of the capital stock of Company B, a public corporation.
b) Consequently, Company B has a deemed year-end on May 14, 20-A by virtue of subsections 256(9) and 249(4) (no election under subsection 256(9) is filed).
c) Company B would like to choose May 14 to be its normal fiscal period and as such its next taxation year would end on May 14, 20-B.
d) However, on June 1, 20-A, Company B elects not to be a public corporation under subsection (c)(i) of the definition of "Public Corporation" in subsection 89(1) (hereinafter the "Subsection 89(1) Election").
e) In consequence of the filing of the Subsection 89(1) Election, Company B is no longer a public corporation. Since Company B is wholly-owned by Company A, itself a CCPC, Company B meets all the requirements of the definition of CCPC pursuant to subsection 125(7) and has a deemed year-end on May 31, 20-A pursuant to subsection 249(3.1).
f) In order to avoid the deemed year-end triggered by virtue of subsection 249(3.1), Company B would elect not to be a CCPC under subsection 89(11) (hereinafter the "Subsection 89(11) Election") by filing the prescribed form on November 14, 20-B for the particular taxation year starting on May 15, 20-A.
In that Particular Situation, we concluded that in order to avoid a May 31, 20-A year-end, Company B would have to file a Subsection 89(11) Election at the latest on November 30, 20-A.
2. Your question
You question whether, in the Particular Situation, the Subsection 89(11) Election should be filed at the latest on November 14, 20-A rather than on November 30, 20-A.
3. Your comments
You provided us with the following comments:
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Moreover, you pointed out the following:
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4. Our comments
Firstly, we would like to note that, in the Particular Situation, had Company B filed a Subsection 89(1) Election on the effective date of the acquisition of control, which is May 15, 20-A, its deemed year-end pursuant to subsection 249(3.1) would have coincided with the deemed year-end triggered by the acquisition of control.
Furthermore, an election filed by a corporation pursuant to subsection 89(11) for a particular taxation year allows the corporation to be deemed not to be a CCPC, at any time in or after the particular taxation year for certain purposes of the Act one of which is the application of subsection 249(3.1).
In the Particular Situation, if Company B wants to avoid a deemed year-end on May 31, 20-A by virtue of subsection 249(3.1), the Subsection 89(11) Election has to be filed for the taxation year starting on May 15, 20-A and ending on May 14, 20-B at the latest on November 30, 20-A (i.e. the potential filing-due date for a taxation year that would otherwise end on May 31, 20-A by reason of the application of subsection 249(3.1)).
If a Subsection 89(11) Election is filed after November 30, 20-A, it can be filed only for the taxation year starting on June 1st, 20-A and ending on May 14, 20-B (and filed at the latest on November 14, 20-B).
In our view, it is not appropriate for Company B to file a Subsection 89(11) Election for its taxation year ended on May 14, 20-A. Indeed, being a public corporation during the whole of that taxation year ended on May 14, 20-A, Company B is not a "private corporation" such that a Subsection 89(11) Election for that taxation year is useless for the purposes of paragraph d) of the definition of CCPC in subsection 125(7).
We trust our comments will be of assistance to you.
Yours truly,
Maurice Bisson, CGA
Section Manager
Corporate Reorganization and Resources Section
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch