Overview
This CRA interpretation discusses the administrative and legislative constraints associated with the subsection 164(6) election, which allows a Graduated Rate Estate (GRE) to carry back certain capital losses and terminal losses to the deceased individual’s final tax return.
Subsection 164(6) is an important post-mortem planning tool used to reduce double taxation that can arise upon death. However, the provision’s strict timing and loss-realization requirements often limit practical use.
The CRA’s comments respond to a question raised at the 2020 STEP CRA Roundtable (November 26, 2020).
Key Issues Considered
- How businesses must report income when paid in Bitcoins
- Whether GST/HST must be charged on Bitcoin transactions
- How capital gains apply to Bitcoin appreciation
- Whether Bitcoin donations receive charitable tax treatment
- How Bitcoin gains/losses are classified (income vs. capital)
1. What Subsection 164(6) Allows
Subsection 164(6) of the Income Tax Act permits the legal representative of a deceased taxpayer’s GRE to elect to:
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Treat certain capital losses
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Treat certain terminal losses
as losses of the deceased person, not the estate.
Why this matters:
If the deceased had capital gains in their final return (e.g., deemed disposition on death), a 164(6) carryback can significantly reduce tax payable by offsetting those gains.
This is a key mechanism for mitigating post-mortem double taxation.
2. Limitations Identified by Practitioners
Practitioners have long noted that the 164(6) rules are extremely restrictive, primarily because:
A. Loss must occur in the GRE’s FIRST taxation year
This is a major practical issue because:
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The estate may require time to analyze assets
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Beneficiaries may be grieving
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Probate delays are common
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Corporate shares often cannot be redeemed quickly
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Litigation or disputes may delay estate administration
B. Must be an actual disposition
Current rules require an actual sale or redemption to occur—
elective or deemed dispositions are NOT permitted without legislative amendment.
C. Tight election filing deadlines
The election timing is governed by Regulation 1000.
3. Can CRA Provide Relief or Extend the Deadline?
CRA can accept a late-filed 164(6) election
Under paragraph 600(b) of the Regulations, subsection 164(6) is a prescribed provision for purposes of:
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220(3.2)(a)
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220(3.2)(b)
This gives CRA administrative discretion to accept a late election, if justified.
However:
CRA cannot relax the statutory requirements
Even if filed late:
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The capital loss must still have occurred in the GRE’s first taxation year
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CRA cannot extend this period
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CRA cannot deem a loss without an actual disposition
These restrictions can only be changed through legislative amendment, not CRA policy.
4. Requests for Legislative Reform
The CRA notes that:
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Concerns with subsection 164(6) were raised in a 2017 Joint Committee submission (CPA Canada & Canadian Bar Association).
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The submission recommended:
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Extending the time limit to the third taxation year of the estate
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Allowing elective dispositions for 164(6) purposes
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CRA Response:
CRA states clearly:
Subsection 164(6) is a matter of tax policy.
Any amendments are under the jurisdiction of the Department of Finance, not CRA.
CRA is willing to work with Finance if Finance requests input.
5. Key Takeaways
- 164(6) can significantly reduce double taxation on death, Allows an estate to carry losses back and offset gains on the final return.
- CRA can accept late-filed elections, But only the timing of the election, not the loss-realization window.
- Loss MUST occur within GRE’s first taxation year. No extensions possible under CRA authority.
- No elective/fictional dispositions allowed. An actual disposition is required unless legislation is amended.
- Any changes to broaden 164(6) Must be made by the Department of Finance.
Disclaimer
This page summarizes CRA technical interpretation 2020-0839951C6 and may not represent the current position of CRA. This information is for educational purposes only and should not be considered tax, legal, or estate planning advice.
Redaction Notice
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