15 December 2009 External T.I. 2009-0323661E5 - 88(1)(d) and 87(11) Amended and Late Designations

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a taxpayer is entitled to make a late-filed or amended designation under paragraph 88(1)(d) and subsection 87(11).

Position: Technically no, but administratively yes, in certain circumstances. More precisely, the CRA would administratively accept a late-filed paragraph 88(1)(d) designation provided that: 1) the parent (or the amalgamated entity where subsection 87(11) is applicable) agrees to allocate the "bump amount", computed under paragraph 88(1)(d), on a pro rata basis among all capital properties that are eligible to increase their cost amount, subject to the maximum bump that is allowed under subparagraph 88(1)(d)(ii); or, 2) the parent (or the amalgamated entity where subsection 87(11) is applicable) accepts the CRA's discretionary allocation of the bump amount amongst any eligible properties. Furthermore, the CRA would also permit, on an administrative basis, a parent (or the amalgamated entity where subsection 87(11) is applicable) to amend a designation previously filed in accordance with paragraph 88(1)(d), in very limited circumstances. For example, where the CRA would not be in agreement with the total bump amount calculated by the parent (or the amalgamated entity where subsection 87(11) is applicable) pursuant to paragraph 88(1)(d) or with the parent's allocation of the bump amount to a specific eligible capital property pursuant to subparagraph 88(1)(d)(ii), the CRA may permit the corporation to amend a previously filed designation. The CRA may also permit a parent (or the amalgamated entity where subsection 87(11) is applicable) to file an amended designation where the parent (or amalgamated entity) would notify the CRA in writing that certain bona fide errors would have been made in the calculation or allocation of the bump amount in the original designation, filed in accordance with 88(1)(d). Under no circumstances, will the CRA accept a late-filed or amended designation if it involves retroactive tax planning or is part of a tax avoidance scheme, or if it is necessary in order to give effect to the designation, to issue a notice of assessment or reassessment for a year that is statute-barred. In all cases, the decision to accept a late-filed or an amended designation will be at the CRA's discretion, based upon the facts of the particular taxpayer's situation. A taxpayer should submit a written request for approval of a late-filed or an amended designation to the Director of the local Tax Services Office.

Reasons: CRA's administrative position.

							2009-032366
XXXXXXXXXX 						Sandra Snell
(613) 957-3261
December 15, 2009

Dear XXXXXXXXXX :

Re Late-filed or Amended "Bump" Designations - Paragraph 88(1)(d) and Subsection 87(11) of the Income Tax Act (the "Act")

We are writing in response to your query dated May 20, 2009, in which you request the Canada Revenue Agency's ("CRA's") position regarding late-filed and amended "bump" designations in respect of paragraph 88(1)(d) and subsection 87(11).

Unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act.

1) Your Question

You have asked us for our position with respect to a late-filed or amended designation pursuant to the bump provisions in paragraph 88(1)(d) and subsection 87(11).

2) Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. The particular situation outlined in your letter appears to be a factual one, involving specific taxpayers and completed transactions. Accordingly, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we offer the following general comments.

Subsection 87(11) provides that, where at any time there is an amalgamation of a parent and one or more of its subsidiary wholly-owned corporations, the cost to the new corporation of each capital property of the subsidiary acquired on the amalgamation is deemed to be the amount that would have been the cost to the parent on a winding-up of the subsidiary and subsections 88(1) and 88(1.7) had applied. In this regard, paragraph 88(1)(d) permits a parent, on the winding-up of a subsidiary to which subsection 88(1) applies, to designate in the parent's return income tax return for the taxation year in which the subsidiary was wound-up, an amount as determined under paragraph 88(1)(d), by which a parent may increase or "bump" the cost of certain capital property (other than an ineligible property pursuant to paragraph 88(1)(c)) acquired by it on the winding-up of its subsidiary.

Technically, a designation pursuant to paragraph 88(1)(d) would only be effective if made in the parent's income tax return for the taxation year in which the subsidiary was wound-up. In the context of a vertical amalgamation to which subsection 87(11) would apply, the CRA's position is that the designation would be effective if filed with the income tax return of the amalgamated entity in its first taxation year. There is technically no provision in the Act in general, or in section 600 of the Income Tax Regulations specifically, which permits the late filing or amendment of a previously filed paragraph 88(1)(d) bump designation.

However, in certain circumstances, the CRA would administratively accept a late-filed paragraph 88(1)(d) designation provided that:

1) the parent (or the amalgamated entity where subsection 87(11) is applicable) agrees to allocate the "bump amount", computed under paragraph 88(1)(d), on a pro rata basis amongst all capital properties that are eligible to an increase in their cost amount, subject to the maximum bump that is allowed under subparagraph 88(1)(d)(ii); or,

2) the parent (or the amalgamated entity where subsection 87(11) is applicable) accepts the CRA's discretionary allocation of the bump amount amongst any eligible properties.

Furthermore, the CRA would also permit, on an administrative basis, a parent (or the amalgamated entity where subsection 87(11) is applicable) to amend a designation previously filed in accordance with paragraph 88(1)(d), in very limited circumstances. For example, where the CRA would not be in agreement with the total bump amount calculated by the parent (or the amalgamated entity where subsection 87(11) is applicable) pursuant to paragraph 88(1)(d) or with the parent's allocation of the bump amount to a specific eligible capital property pursuant to subparagraph 88(1)(d)(ii), the CRA may permit the corporation to amend a previously filed designation. The CRA may also permit a parent (or the amalgamated entity where subsection 87(11) is applicable) to file an amended designation where the parent (or the amalgamated entity) would notify the CRA in writing that certain bona fide errors would have been made in the calculation or allocation of the bump amount in the original designation, filed in accordance with 88(1)(d).

Under no circumstances, will the CRA accept a late-filed or amended designation if it involves retroactive tax planning or is part of a tax avoidance scheme, or if it is necessary in order to give effect to the designation, to issue a notice of assessment or reassessment for a year that is statute-barred.

In all cases, the decision to accept a late-filed or an amended designation will be at the CRA's discretion, based upon the facts of the particular taxpayer's situation. A taxpayer should submit a written request for approval of a late-filed or an amended designation to the Director of the local Tax Services Office.

The above comments represent our general view with respect to the subject matter and are not binding on the CRA, as explained in paragraph 22 of Information Circular 70-6R5. We trust that the foregoing will be of assistance to you.

Yours truly,

Stéphane Prud'Homme, LL.B, M. Fisc.

Manager
Mergers and Acquisitions Section
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch