All About Estates

LATE FILED ELECTION TO SPLIT PENSION INCOME

While we are on the subject of joint elections to split pension income in the year of death: What if, as trustee of the estate, you discover that the deceased and his spouse did not split eligible pension income in the years prior to his year of death. Can you late file the elections and will the CRA accept them and re-assess accordingly?

Recently the CRA was asked to comment on late-filed elections.

We know that, pursuant to the Income Tax Act (“ITA”), a pensioner may make a joint election to split eligible pension income, defined therein, with a pension transferee. The election must be completed, signed, and attached to their returns by the filing-due date of the taxation year in issue.

Where the pensioner and the pension transferee have not filed the election on time, the CRA may, pursuant to the ITA, extend the time for the pensioner to file the election, if two conditions exist. First, the pensioner must be a Canadian resident. Second, the pensioner must make the request no later than three calendar years after the filing-due date for the year to which the election applies.

The ITA states that the normal reassessment period for an individual is three years, calculated from the earlier of the day that the notice of assessment was sent, and the day of sending an original notification that no tax is payable.

On the other hand, the ITA also authorizes the Minister, on application by a taxpayer within ten calendar years after the end of a taxation year, to reassess tax, interest, or penalties (“amounts”) payable by the taxpayer, where the purpose of the reassessment is to determine, after the expiry of the normal reassessment period, the amounts of any refund or reduction of amounts payable for that year.

The joint election would permit the CRA to reassess a pensioner beyond the normal reassessment period because the election would result in a reduction of tax payable. However, where the effect of the election is to increase a pension transferee’s tax payable, and not generate a refund, the pension transferee could not be reassessed. The CRA stated that, in practice, it could not accept the late filed election unless it could assess both the pensioner and the pension transferee.

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About Steven Frye
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