ISSUE SHEET
Question 48 - Section 85 Elections - Valuation Day Disputes
(1) 991 Canadian Tax Foundation Roundtable)
Issue
The question observed that the administrative practice at paragraph 14 of former IC 76-19R that, where a client makes a reasonable effort to determine V-Day value, the Department will adjust the agreed amount in a section 85 election was not carried forward to IC 76-19R2. The question then asked whether an amended election and applicable penalty would be required where there is a V-Day value disagreement.
Answer
The answer stated that since IC 76-19R dated November 13, 1978 was replaced by IC 76-19R2 dated June 15, 1990, the comments contained in the former IC no longer apply. Hence, if a transferor wants to avoid any unintended tax consequences of a section 85 election, an amended election and payment of applicable penalty would be required.
Discussion
The Roundtable answer regarding the requirement of an amended election and payment of the applicable penalty is provided for in subsection 85(7.1) applicable after February 15, 1984. That subsection 85(7.1) would apply in circumstances involving V-Day value disputes is supported by a legal opinion dated August 28, 1990. The administrative practice stated in former IC 76-19R of accepting amended V-Day values was legislated in subsection 85(7.1) and this is reflected in IC 76-19R2. However, the administrative practice was continued until the release of IC 76-19R2 in 1990. 23
Prepared by: John Chan
May 25, 1992
# 5-921236