Principal Issues: If a PLOI election is late-filed with the Minister in accordance with subsection 15(2.12) or 212.3(12), does it become valid at the time it is filed or only after the reassessment of the affected taxation year(s) has been processed by the CRA?
Position: To the extent the election is filed in compliance with subsections 15(2.11) and 15(2.12), or 212.3(11) and 212.3(12), the election is valid.
Reasons: Interpretation of subsections 15(2.11), 15(2.12), 212.3(11), 212.3(12), 152(3.1), 152(4).
All references herein to a section, subsection, paragraph, subparagraph or clause is a reference to the relevant provision of the Income Tax Act, R.S.C. 1985 (5th Suppl.) c.1, as amended
2024 IFA Annual Conference
CRA Roundtable
QUESTION 5: Late-filed PLOI election and reassessment of the affected taxation year(s).
Pursuant to subsection 15(2.12) or 212.3(12), where a pertinent loan or indebtedness (“PLOI”) election is made on or before the day that is three years after the day it was due, the election is deemed to have been made on the day on or before which the election was required by paragraph 15(2.11)(d) or 212.3(11)(c), as the case may be, to be made. In instances where a late-filed PLOI election is made prior to the three-year limitation period referred to in subsection 15(2.12) or 212.3(12) but no reassessment is issued to the corporation resident in Canada (“CRIC”) to reflect the additional interest income under subsection 17.1(1) prior to the CRIC’s relevant taxation year being statute-barred, will the CRA accept the validity of the election?
CRA Response
Pursuant to either subsection 15(2.11) or 212.3(11), a PLOI election in respect of an amount that became owing to a CRIC or certain partnerships after March 28, 2012 must be filed with the Minister of National Revenue (the “Minister”) on or before the filing-due date of the CRIC for the taxation year in which the amount became owing (or, for the purposes of subparagraph 15(2.11)(d)(ii), for the CRIC’s taxation year in which ends the fiscal period of the qualifying Canadian partnership (“QCP”) in which the amount became owing).
Where a CRIC did not make a timely PLOI election, the PLOI election may be late-filed pursuant to subsection 15(2.12) or 212.3(12) on or before the day that is three years after the applicable filing-due date provided the late-filing penalty pursuant to subsection 15(2.13) or 212.3(13), as applicable, is paid by the CRIC. If the late-filed election is filed with the Minister within the time limit set out in subsection 15(2.12) or 212.3(12), and complies with the requirements in these subsections, as well as in subsection 15(2.11) or 212.3(11), the election would be considered valid, regardless of whether a reassessment has been issued by the CRA to the CRIC or a determination of income or loss of the QCP has been made to reflect the additional interest income under subsection 17.1(1).
Generally, a reassessment of tax can only be made within the normal reassessment period as defined in subsection 152(3.1), subject to the exceptions to this general rule provided in subsection 152(4). Specifically, clause 152(4)(b)(iii)(A) extends the normal reassessment period by additional three years in cases where an assessment, reassessment or additional assessment is made as a consequence of a transaction involving the taxpayer and a non-resident person with whom the taxpayer was not dealing at arm's length. Subparagraph 152(4.01)(b)(iii) clarifies that the Minister can make such an assessment, reassessment or additional assessment beyond the normal reassessment period only to the extent that it can reasonably be regarded as relating to the transaction referred to in clause 152(4)(b)(iii)(A).
The reassessment made as a consequence of a loan or indebtedness in respect of which a PLOI election is made will almost certainly be subject to an extended reassessment period under clause 152(4)(b)(iii)(A), which applies to a “transaction” as defined in subsection 247(1), which includes an arrangement or an event. A PLOI election made jointly by the CRIC and a non-resident corporation that controls the CRIC or each parent (as defined in paragraph 212.3(1)(b)) would be an arrangement or event (a transaction) involving the taxpayer and a non-resident person. Even where the CRIC and each parent are not related, they will nevertheless almost certainly be factually non-arm’s length. As such, clause 152(4)(b)(iii)(A) would apply to allow the Minister to reassess the relevant taxation year(s) beyond the normal reassessment period and include the deemed interest resulting from section 17.1 in the CRIC’s income.
Thus, the CRA will reassess the additional interest income resulting under subsection 17.1(1) from a late-filed PLOI election before the relevant taxation year(s) of the CRIC become statute-barred.
Michael Chan
2024-100758
May 15, 2024
Prepared in collaboration with:
Jess Johns, Marian Young, Marie-Helene Chouinard, Chantal Tubie, Alexandre Ely, and Pauline Motard, International Tax Division, International and Large Business Directorate, Compliance Programs Branch
Pierre Girard and Gillian Godson, Administrative Law Section, Specialty Tax Division, Income Tax Rulings Directorate, Legislative Policy and Regulatory Affairs Branch