Principal Issues: [TaxInterpretations translation] Should a request to change the ACB on prescribed Form T664 be accepted by the CCRA?
Position: The request to amend the ACB is not an amendment to the election made pursuant to subsection 110.6(19) of the Act and the ACB may be amended after 1997 without penalty.
Reasons: The election was made in respect of the shares and there is no change to the amount shown as proceeds of disposition of those shares.
January 7, 2004
Ms. Ghyslaine Larouche Headquarters
Jonquière Tax Centre Sylvie Labarre, CA
Client Services (613) 957-8953
541-1-2
2003-004671Change in adjusted cost base
This is further to your fax dated November 3, 2003, in which you requested our opinion regarding a taxpayer's request to change the adjusted cost base (ACB) of a property identified in an election made pursuant to subsection 110.6(19) of the Income Tax Act (the "Act").
You presented us with the situation of a taxpayer who made an election pursuant to subsection 110.6(19) in respect of shares he held in the capital stock of a corporation. The election was filed within the time limit set out in subsection 110.6(24). The taxpayer's elected proceeds of disposition for the shares were $XXXXXXXXXX. The taxpayer recorded an ACB of $XXXXXXXXXX for those shares on the prescribed form when the taxpayer should have recorded an ACB of $XXXXXXXXXX. In XXXXXXXXXX, the taxpayer requested that the ACB of the shares be changed, thereby reducing the capital gain realized as a result of the election. By making this change, you are of the view that the capital gains deduction deducted in 1994 will be lower, which will be reflected in the total amount the taxpayer can claim as a capital gains deduction on a future sale of qualified small business corporation shares.
You wish to know if you can accept this application to amend even though the time limit under subsection 110.6(27) to amend an election made pursuant to subsection 110.6(19) has expired.
Our Comments
Subsection 110.6(27) provides that generally a taxpayer may amend an election made under subsection 110.6(19) if a Form T664 in respect of the amended election was filed with the Minister before 1998 and an estimate of the penalty under subsection 110.6(29) was paid by the taxpayer at the time the form in respect of the amended election was filed with the Minister.
We are of the view that the correction of the ACB of a property subject to the election does not constitute an amended election pursuant to subsection 110.6(27) since the taxpayer is not requesting a change to the amount shown as proceeds of disposition of those shares in the original election. Consequently, a request to change the ACB can be granted even if it is made after 1997 as long as you ensure that the ACB is accurate. Since the requested change is not an amended election under subsection 110.6(27) of the Act, nor a late election under subsection 110.6(26), the penalty under subsection 110.6(29) cannot be applied.
Furthermore, we agree with you that this change to the ACB will have the effect of increasing the balance of the capital gains deduction available for subsequent years, since the taxpayer could not deduct a capital gains deduction in 1994 that exceeded the capital gain actually realized.
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 Revenue Agency's 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 CRA 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 that has been severed in accordance with the Privacy Act will be sent to you for delivery to the client.
We hope that these comments are of assistance. Should you require further information on the content of this document, please do not hesitate to contact us.
Ghislaine Landry, CGA
for the Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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