28 January 2003 Internal T.I. 2002-0175927 F - Choix de 107(2.001) -- translation

Principal Issues: [TaxInterpretations translation] Determine whether the election provided for in subsection 107(2.001) of the Income Tax Act can be made late.

Position: No.

Reasons:

Paragraph 220(3.2)(a) of the Income Tax Act and section 600 of the Income Tax Regulations.

January 28, 2003

Request for technical interpretation: Election pursuant to subsection 107(2.001)

This is further to your fax of November 25, 2002 regarding the above subject. More specifically, you wish to know whether the election provided for in subsection 107(2.001) of the Income Tax Act (the "Act") can be made late in light of the following circumstances:

• Mr. X died on XXXXXXXXXX.
• On XXXXXXXXXX, Mr. X's estate (the "Estate") distributed property, namely, shares of public companies, in partial satisfaction of the capital interests of XXXXXXXXXX beneficiaries of the trust. This distribution was made pursuant to subsection 107(2) of the Act. At the time of the distribution, the total cost of these shares was $XXXXXXXXXX while their fair market value was $XXXXXXXXXX.
• On XXXXXXXXXX the Estate filed its income tax return for its first taxation year, i.e., for the period from XXXXXXXXXX to XXXXXXXXXX.
• On XXXXXXXXXX, the Estate filed its return of income for its second taxation year, that is, for the period from XXXXXXXXXX to XXXXXXXXXX. No election pursuant to subsection 107(2.001) was filed with that return.
• On XXXXXXXXXX, the representative of the Estate requested a late election for the purposes of subsection 107(2.001) in respect of the distribution of property made on XXXXXXXXXX. The representative attached an amended T-1 for Mr. X's final return and a clearance certificate. Mr. X's amended return resulted from the election provided for in subsection 164(6) and was dependent on the acceptance of the late election made by the Estate pursuant to subsection 107(2.001).
• As of XXXXXXXXXX, the beneficiaries of the Estate had not yet disposed of the property distributed to them by the Estate on XXXXXXXXXX.

Comments

An election pursuant to subsection 107(2.001) must be made in prescribed form and filed with the Minister with the trust's return of income for its taxation year in which property is distributed to a beneficiary of the trust in full or partial satisfaction of the beneficiary's capital interest in the trust. However, with respect to distributions of property made before June 14, 2001, the day subsection 107(2.001) was assented to, an election under subsection 107(2.001) is deemed to have been made on a timely basis if it is made on or before the trust's filing-due date for its taxation year that includes June 14, 2001. Pursuant to paragraph 150(1)(c), an estate must file its income tax return within 90 days of the end of its taxation year.

In this case, the distribution of property by the Estate took place on XXXXXXXXXX, that is, before the date subsection 107(2.001) received Royal Assent. Consequently, the Estate had until XXXXXXXXXX, 90 days after the due date for filing its return of income for its taxation year that includes June 14, 2001, to make an election pursuant to subsection 107(2.001). The election made by the Estate on XXXXXXXXXX was therefore not made within the time prescribed by the Act.

However, pursuant to paragraph 220(3.2)(a), the Minister may extend the time for making an election under a prescribed provision of the Act or the Income Tax Regulations (the "Regulations"). The provisions referred to in paragraph 220(3.2)(a) of the Act are listed in section 600 of the Regulations. Since subsection 107(2.001) of the Act is not listed in section 600 of the Regulations, the Minister has no discretion to extend the deadline for making the election.

In certain circumstances, however, it is possible to make certain allocations or designations that are not listed in section 600 of the Regulations at a later date. Thus, in The Queen v. Nassau Walnut Investments Inc, 97 DTC 5051 (F.C.A.) ("Nassau"), and Lussier v. The Queen, 99 DTC 1029 (T.C.C.) ("Lussier"), it was determined that the allocations or designations provided for in paragraph 55(5)(f) and subsection 104(13.1) of the Act could be made late despite the fact that these provisions are not listed in section 600 of the Regulations. However, we are of the view that such a result cannot be translated to the election provided for in subsection 107(2.001) of the Act, for the following reasons:

(i) The election provided for in subsection 107(2.001) of the Act must be made in prescribed form, which is not the case for the designations or allocations provided for in paragraph 55(5)(f) and subsection 104(13.1) (see Lussier, at paragraph 32).

(ii) A fixed period of time is allowed for making the election provided for in subsection 107(2.001) of the Act, whereas no period of time is allowed for the designations or allocations provided for in paragraph 55(5)(f) and subsection 104(13.1) (see Lussier, at paragraphs 28 to 35).

(iii) Unlike subsection 107(2.001) of the Act, paragraph 55(5)(f) and subsection 104(13.1) do not refer to the making of an election but rather to an allocation or designation (see Nassau, at pages 5057 and 5058).

In light of the foregoing, we are of the view that the election provided for in subsection 107(2.001) of the Act cannot be made late. Consequently, the election made by the Estate on XXXXXXXXXX was invalid since it was not made within the time limit set out in the Act and the Minister had no discretion to extend that time limit.

For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the electronic library version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Best regards,

Alain Godin
Manager
for the Division Director
International Operations and Trusts Section
International Operations and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch