Principal Issues: 1) In a given fact situation, a corporation ("XCO") filed in 2001 an election under subsection 83(2) of the Act. The amount designated as a capital dividend exceeded the amount available to be paid as a capital dividend. No notice of assessment under Part III was ever issued in respect of XCO for the 2001 taxation year. Furthermore, no notification that no Part III tax is payable was ever issued in respect of XCO for such taxation year. 2) In another given fact situation, the Canada Revenue Agency ("CRA") never received an election made by a corporation ("YCO") under subsection 83(2) of the Act (the "1997 Election"). The 1997 Election was in respect of a dividend payable in XXXXXXXXXX 1997, but was dated XXXXXXXXXX 1998. No penalty for late filing was ever received in respect of the 1997 Election. At the time of the 1997 Election, an individual ("Y") was the only shareholder of YCO. Finally, the "normal reassessment period" in respect of the 1997 taxation year of Y and YCO would be expired. Furthermore, no waiver was filed within the normal reassessment period for Y or YCO in respect of their 1997 taxation year.
Position: 1) The CRA should first assess Part III tax in respect of the 2001 taxation year of XCO. If XCO elects under subsection 184(3) of the Act to avoid the Part III tax, the CRA would have to assess the shareholders of XCO in order to take into consideration the taxable dividend that would be deemed to be received by the shareholders under paragraph 184(3)(d) of the Act. Under subparagraph 184(4)(b)(ii) of the Act, such assessment of tax payable by the shareholders may be made notwithstanding subsection 152(4) to (5) of the Act. 2) The CRA should request, under subsection 83(3.1) of the Act, that an election referred to in subsection 83(3) be made by YCO in respect of the 1997 dividend. YCO could comply with this request within the ninety-day prescribed period and make a late filed election in 2005 in respect of the 1997 dividend. YCO would have to pay an estimate of the penalty in respect of such election, at the time the late-filed election is made. Under subsection 83(5) of the Act, the Minister would have to examine the late-filed election referred to in paragraph 83(3)(a), assess the penalty payable and send a notice of assessment to YCO in 2005. Under subsection 220(3.1) of the Act, the Minister may, depending on the circumstances, waive or cancel all or any portion of any penalty or interest otherwise payable by a taxpayer. If YCO does not comply with the CRA's request made under subsection 83(3.1) within the ninety-day prescribed period and considering the facts and circumstances surrounding the given situation, the application of subparagraph 152(4)(a)(i) should be considered with respect to Y and the dividend received by him from YCO in 1997.
Reasons: Wording of the Act.