A private corporation (Aco), which had paid a capital dividend out of what it believed to be a capital dividend account balance generated by a property sale, was reassessed by CRA for Pt. I tax on the basis that the disposition was on income account, and also for Pt. III for the alleged excessive capital dividend. Aco suggested that upon filing its Notice of Objection to the Pt. I and III tax reassessments, Aco would file a s. 184(3) election but would request that CRA not deal with that election until the Court had ruled in CRA’s favour. In rejecting this suggestion, the Directorate stated:
[I]n order for the AB [Appeals Branch] with all due dispatch to conduct a review of the assessment of Pt. III tax under the Act and make a decision to either vacate, confirm or vary it by virtue of subsection 165(3), the review of the assessment must take into account the 184(3) Election filed by the corporation, that is, not only to determine the validity of that 184(3) Election but also, if applicable, to give immediate effect to it by cancelling the assessment of Pt. III tax payable by the corporation and the assessment of Pt. I tax payable by its shareholders for whom the 184(3) Election applies.
Thus, in the particular situation, for the reasons set out above, we are of the view that, technically, the ABSB should not suspend the processing of Aco's valid 184(3) Election but rather should proceed with it and, as a result, the AB should cancel the assessment of the Pt. III tax payable by Aco pursuant to subsection 165(3) and the ABSB should assess the Pt. I tax payable by the Aco shareholder to whom the 184(3) Election applies.