2024-1007571C6 2024 IFA Q4. Late-filed PLOI election

Principal Issues: Can the CRA clarify which documents it expects taxpayers to provide together with a late-filed PLOI election made under subsection 15(2.12) or 212.3(12)?

Position: A CRIC is not required to file an amended corporate tax return to report the additional interest income resulting from a late-filed PLOI election. However, in order to facilitate a timely and efficient processing of the late-filed PLOI election, CRICs should file form T1521 or form T2311 together with any amended schedules that are affected by the late-filed PLOI election and not already reflected on the forms for each relevant taxation year. In the case of a PLOI owing to a QCP, amended partnership information return(s) should be filed, as well as amended Schedule(s) 1 of their corporate members and any other amended schedules relating to their corporate tax return(s) that are affected by the late-filed PLOI election.

Reasons: A valid late-filed PLOI election gives effect to the tax consequences to be assessed.

Author: Chan, Michael
Section: 15(2.11), 15(2.12), 212.3(11), 212.3(12)

All references herein to a section, subsection, paragraph, subparagraph or clause is a reference to the relevant provision of the Income Tax Act, R.S.C. 1985 (5th Suppl.) c.1, as amended

2024 IFA Annual Conference
CRA Roundtable

QUESTION 4: Late-filed PLOI election and supporting documentation.

In the context of a late-filed pertinent loan or indebtedness (“PLOI”) election, the CRA commented in Document 2014-0519431E5 that a corporation resident in Canada (“CRIC”) would not be required to file an amended corporate tax return in addition to filing a valid PLOI election. On March 25, 2022, the CRA published revised taxpayer instructions for filing a PLOI election (“PLOI Instructions”) (footnote 1) where the CRIC is instructed to provide amended Schedules 1, 125 and any other affected schedules for each relevant year when filing a late-filed PLOI election in order to request a reassessment to report the interest income inclusion on the CRIC’s income tax return. For a late-filed PLOI election involving a partnership or tiered partnerships, the PLOI Instructions direct taxpayers to also provide amended partnership return(s) for each partnership affected by the interest income inclusion (T5013 and applicable schedules, including amended Schedules 1 and 125) for each relevant fiscal period. As such, the PLOI Instructions request the amended schedules for the purposes of processing the election, but do not necessitate a taxpayer to file an amended corporate tax return.

Can the CRA clarify that a CRIC is not required to separately file an amended corporate tax return in addition to filing a valid PLOI election?

CRA Response

A PLOI exists when the conditions set forth in subsection 15(2.11) or 212.3(11) are met. Paragraphs 15(2.11)(d) and 212.3(11)(c) require that an election be made in writing and filed with the Minister within the applicable deadline. Subsections 15(2.12) and 212.3(12) allow for the late-filing of a PLOI election provided it is made on or before the day that is three years after the day on which the election was required to be made and the CRIC pays the penalty provided under subsection 15(2.13) or 212.3(13). If any of these conditions are not met, the late-filed PLOI election will be considered invalid.

In February 2024, the CRA published form T1521 – Election for a Pertinent Loan or Indebtedness (PLOI) under Subsection 15(2.11). In April 2024, the CRA also published form T2311 – Election for a Pertinent Loan or Indebtedness (PLOI) under Subsection 212.3(11). Taxpayers can now use these forms to file PLOI elections.

For late-filed PLOI elections that result in section 17.1 applying to a CRIC, the PLOI Instructions outline that the CRIC is not required to file an amended corporate tax return to report additional interest income as a result of a late-filed PLOI election provided the CRIC submits an amended Schedule 1. This remains the case. However, form T1521 or T2311, as applicable, can now be used to input all the relevant amounts instead of filing an amended Schedule 1. If there are additional schedules that are affected by the interest income inclusion resulting from the election, those amended schedules should be provided with the election for each relevant taxation year.

With respect to a loan or indebtedness owing to a qualifying Canadian partnership (“QCP”), the wording of the instructions contained in Part 3 of form T1521 suggests that filing an amended partnership information return is not required. This wording will be revised to clarify that, in order to process the necessary adjustments in respect of a QCP and its corporate members, there should be filed, along with form T1521, an amended partnership information return (or amended partnership information returns, in cases involving tiered partnerships) for each relevant fiscal period. An amended Schedule 1 of each corporate member of the QCP, as well as any other amended schedules relating to their corporate tax returns that are affected by the late-filed PLOI election, should also be submitted. Taxpayers who may have late-filed form T1521 in respect of a loan or indebtedness owing to a QCP without providing amended partnership information return(s) are invited to provide the amended return(s) together with any relevant amended schedules of the corporate partners, as well as a copy of the previously filed form T1521, to facilitate a timely and efficient processing of their late-filed PLOI election.

Michael Chan
2024-100757
May 15, 2024

Prepared in collaboration with:
Jess Johns, Marian Young, Marie-Helene Chouinard, Chantal Tubie, and Alexandre Ely, International Tax Division, International and Large Business Directorate, Compliance Programs Branch

Pierre Girard and Gillian Godson, Administrative Law Section, Specialty Tax Division, Income Tax Rulings Directorate, Legislative Policy and Regulatory Affairs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations/corporation-payments/understanding-interest.html#lns

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