Principal Issues
Position
Subsection 164(6) permits the legal representative of a graduated rate estate (“GRE”) to elect to treat certain losses realized by the estate as losses of the deceased in the year of death.
The election must be made within the prescribed time and in the prescribed manner.
The Canada Revenue Agency (“CRA”) has the discretion to accept a late-filed election; however, the requirement that the losses arise in the first taxation year of the estate remains unchanged.
Reasons
Subsection 164(6) of the Act allows the legal representative administering a GRE to elect to have certain capital losses and terminal losses realized by the estate deemed to be losses of the deceased for the year of death, rather than losses of the estate.
This election permits the carryback of such losses to the deceased’s final return and may be used to mitigate potential double taxation arising on death.
The election must be filed in the prescribed manner and within the time limits set out in section 1000 of the Income Tax Regulations.
Pursuant to paragraph 600(b) of the Regulations, subsection 164(6) is a prescribed provision for the purposes of paragraphs 220(3.2)(a) and (b) of the Act. Accordingly, the CRA may accept a late-filed election at its discretion.
Notwithstanding the CRA’s ability to accept a late election, the losses to which the election applies must be realized in the first taxation year of the estate.
Concerns have been raised that the requirements of subsection 164(6), including the time constraints for realizing losses and making the election, may limit its practical application in certain circumstances.
However, any amendments to subsection 164(6), including extensions of time or changes to the nature of qualifying dispositions, are matters of tax policy within the purview of the Department of Finance.
Limitations
The application of subsection 164(6) depends on the specific facts and compliance with the statutory requirements, including timing and realization of losses.
Written confirmation of tax consequences is provided only in the context of an advance income tax ruling request submitted in accordance with CRA administrative procedures.
