What is the deadline to file a section 85 election, and can it be filed late?
Under subsection 85(6) of the Income Tax Act, the election is due on or before the earliest day any electing taxpayer must file an income tax return for the year of the transfer. Subsections 85(7) and 85(7.1) allow a late election, with a penalty.
The Canada Revenue Agency (CRA) publishes the section 85 election as form T2057, which a taxpayer and a taxable Canadian corporation use to elect jointly under subsection 85(1) of the Income Tax Act. The Act sets the deadline and the late-filing route itself. This page is about those two points. For what the election does, see what a section 85 rollover is.
What the deadline is
Subsection 85(6) says the election must be made on or before the earliest of the days on or before which any taxpayer making the election must file a return of income under section 150 for the taxation year in which the transaction occurred. The Act does not give one calendar date. The deadline depends on the section 150 filing day of each taxpayer making the election, and the earliest of those days governs. Ask your accountant to name the date and to confirm it for every party to the election.
Filing late
If the deadline passes, subsection 85(7) deems the election made on the deadline day if, on or before the day that is 3 years after the deadline, it is made in prescribed form and the taxpayer or partnership pays an estimate of the penalty with it. The penalty is set by subsection 85(8). The Act sets it at the lesser of two amounts, one of which is built on the number of months, or parts of months, the election is late. Under subsection 85(9), the Minister must then assess the penalty and send a notice of assessment, and any unpaid balance is payable to the Receiver General.
After the three years
Subsection 85(7.1) covers elections that are later still, and amended elections. Where, in the opinion of the Minister, the circumstances make it just and equitable to permit one, the election is deemed made on the original deadline if it is in prescribed form and an estimate of the penalty is paid with it. That is the Minister’s opinion, not a right. If a deadline has been missed, ask your accountant or lawyer whether to approach the CRA, and treat the late route as a repair, not a plan.
What to ask before closing
- Who completes and files form T2057, and on what date?
- Which return filing day under section 150 sets the deadline, for each party to the election?
- Does the transfer date or any party’s year-end change which filing day is the earliest?
Related reading
6 pages on the same subject, grouped by topic.
Tax
Sources
This answer is checked against primary sources. Links were last confirmed on the dates shown.
- 01Government of Canada — Justice LawsGovernmentIncome Tax Act, section 85 (transfer of property to a corporation by a shareholder)
- 02Canada Revenue AgencyGovernmentT2057 Election on Disposition of Property by a Taxpayer to a Taxable Canadian Corporation
- 03Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
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