Canco, did not prepare detailed calculation of its various surplus and underlying tax balances in respect of a wholly-owned subsidiary (FA) from which it received a dividend, and nonetheless claims a full s. 113(1) deduction for that dividend. After indicating that if a complete surplus computation is not provided to it, its current general practice is to deny the s. 113(1) deduction, CRA went on to address the question of whether it would accept the late filing by Canco of an election under Regs. 5901(2.1) and (2.2) in order for the dividend to be completely sheltered by the s. 113 (e.g., if it discovered that it had hybrid or taxable surplus)?
CRA indicated that relying on surplus balances unsubstantiated by a detailed computation would generally not meet the condition in Reg. 5901(2.1)(b) of having demonstrated the making of a determination using reasonable efforts to not make an acquisition surplus election in respect of the whole dividend before the filing due-date.
In addition to the situation submitted not satisfying that test, it also would be the CRA view that it would not be “just and equitable” (per Reg. 5901(2.2)) to permit the filing of a late election where Canco did not make detailed calculations of its relevant surplus accounts because of its assumption that the late election, and related ACB deduction, would result in no income inclusion.