27 February 1989 Income Tax Severed Letter 7-3651 - [Capital Dividend Elections Subsection 83(2) - Form T2054]

MEMORANDUM NOTE DE SERVICE

DATE FEB FEV 27 1989

To/À Assessing and Enquiries Directorate

FROM/DE Specialty Rulings Directorate
        H.K. Tilak
        957-2119

D.I. Wyse, Chief Trust and Other Returns Section

Your File: HAV 4533-3-4

FILE DOSSIER 7-3651

SUBJECT:
OBJET:   Capital Dividend Elections 
         Subsection 83(2) - Form T2054
         -----------------------------

This is in reply to your memorandum of February 8, 1989 regarding situations in which a corporation computes its capital dividend account (the "CDA") pursuant to paragraph 89(1)(b) of the Income Tax Act by including amounts in respect of capital gains that were realized in prior years (which are now statute-barred) where such gains were not reported and included in computing the corporation's Part I income for those prior years.

                          XXXX

                        we believe that, in the appropriate circumstances, 
ou may wish to consider adopting a different position.

For example, where the corporation became aware (or ought to have become aware but for the corporation's neglect or carelessness) of capital gains realized in a particular year (that were not reported in computing the corporation's Part I income for the particular year) after the particular year's return was filed or assessed but prior to the particular year otherwise becoming statute-barred, you may wish to consider whether there is any legal basis for reassessing the particular year, pursuant to subparagraph 152(4)(a)(i) of the Act, on the ground that, in a self- assessing system, a taxpayer has a continuing duty to amend such incorrect returns. If such a duty exists, the corporation may be considered to have made a misrepresentation that is attributable to its neglect, carelessness or wilful default depending upon the particular circumstances.

Where you are unable to reassess the earlier years, you may wish to consider whether the corporation would be estopped from denying its representations as to the capital gains realized by it in its returns for the statute-barred years under the principles established in Wilchar Construction Ltd. v. The Queen (1981), 81 DTC 5318 (FCA) and Hnatiuk v. The Queen (1976), 76 DTC 6376 (FCTD). If the principle of estoppel applies in any particular case, you may be able to assess Part III tax pursuant to subsection 185(1) of the Act in the event that the corporation makes an election in accordance with subsection 83(2) of the Act to treat a declared dividend as a capital dividend.

You may wish to obtain the views of the Department of Justice regarding our comments before you finalize your policy for processing capital dividend elections.

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch