Late-Filed Section 85 Election Penalty Calculator
The penalty for filing a section 85 election late is capped. The tax if the election is not accepted is not. Work out the penalty, see which side of the three-year line you are on, and compare both against what the rollover is actually protecting.
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How the Penalty Is Worked Out
| Limb | Basis | Amount |
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Accepted Against Refused
| Item | Election Accepted | Election Refused |
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Which Route Is Open to You
| Route | What It Requires | Your Position |
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Points That Decide This
What to Do Next
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Disclaimer: This page produces an illustrative estimate from the figures you enter and is not a penalty assessment, a determination that any election may be late-filed, or advice on a particular transfer. It deals only with an election under subsection 85(1) or 85(2) of the Income Tax Act and does not apply to other elections. Where such an election is not made by the day on or before which it was required to be made, the Act permits it to be made after that day on payment of a penalty, and provides separately for the Minister to accept an election made beyond the period for late filing, or an amended election, where in the Minister’s opinion the circumstances are such that it would be just and equitable to do so; the second of those is a discretionary decision and not an entitlement. The penalty is computed as the lesser of a percentage, for each month or part of a month in the period, of the amount by which the fair market value of the property at the time of disposition exceeds the agreed amount, and a fixed dollar amount for each such month or part of a month, subject to a maximum; the figures on this page are editable because the statutory amounts, the percentage and the maximum must be confirmed against the Act as it reads for the period in question. The agreed amount that may be elected is itself constrained by the Act and an amount outside those limits is adjusted by rule rather than accepted as elected, which is not calculated here. The tax shown as arising if the election is not accepted is a simplified illustration using the single inclusion rate and marginal rate you enter; an actual transfer may give rise to recapture of capital cost allowance, income rather than capital treatment, more than one class of property, provincial variation, alternative minimum tax, and other consequences, and the transferor’s own tax position governs. Other provisions may also apply to a transfer to a corporation, including rules that can reduce the adjusted cost base of shares received or deem a dividend. Relief from a penalty or interest is a separate matter with its own criteria and process. This page is general information, not tax or legal advice, and a late or amended election should be dealt with by a professional before anything is filed.
The Penalty Is Capped. The Tax Behind It Is Not.
People discover a missed section 85 election and ask what the penalty will be. It is the wrong question, or at least the small one. The penalty has a statutory ceiling in the thousands. The tax that the rollover was deferring has no ceiling at all.
On a transfer with eight hundred thousand of deferred gain, the penalty is a rounding error against the tax that arrives if the election is not accepted. So the thing to protect is the election, not the penalty.
The number that matters is the one on the other side of the three-year line. Inside it, late filing is available on payment of the penalty. Outside it, you are asking the Minister to exercise a discretion, and there is no entitlement to it.
Two Limbs, and the Smaller One Wins
The penalty is the lesser of a percentage of the deferred gain for each month, and a fixed dollar amount for each month, subject to a maximum. Because it is the lesser, two quite different cases collapse into very small numbers.
Where the deferred gain is large, the dollar limb binds and the penalty is modest and capped. Where the deferred gain is small, the percentage limb binds and the penalty can be almost nothing. Either way the penalty is rarely the reason to hesitate.
| Situation | Which limb binds | Practical effect |
|---|---|---|
| Large deferred gain | The fixed dollar amount | Modest, and capped |
| Small deferred gain | The percentage | Often very small |
| Agreed amount equal to value | The percentage, on nil | No deferred gain to charge |
| Many months late | The maximum | Stops rising at the ceiling |
Inside Three Years Is a Right. Beyond It Is a Request.
This is the distinction the whole page turns on. Within the period for late filing, the election can be made late and is treated as having been made on time, provided the penalty is paid. It is mechanical.
Beyond that period, acceptance depends on the Minister forming the opinion that it would be just and equitable to allow it. That is a different kind of thing. It can be granted, and it is granted, but it is not something to plan around, and the case has to be made rather than assumed.
Amending an election follows the discretionary route as well, not the mechanical one, even when the original was filed on time. So an election filed on time with the wrong agreed amount is not simply corrected on request.
Every Election Is Different, and Most Are Not This One
This calculator is deliberately limited to the section 85 election, because late-filing relief is not a general concept. Some elections have a statutory late-filing mechanism with a penalty, as this one does. Some depend entirely on ministerial discretion. Some cannot be made late at all, and missing the date ends the matter.
So a figure worked out here says nothing about a missed election under another provision. The first question on any missed election is which provision it sits under and what that provision permits, and only then what it costs.
Do not read across from one election to another. A late-filing route that exists for one provision frequently does not exist for the next, and assuming otherwise is how a recoverable position becomes a permanent one.
The Agreed Amount Has Its Own Limits
Separately from timing, the amount that may be elected is constrained. An agreed amount below the floor the Act sets, or above fair market value, is adjusted by rule rather than taken as filed. An election can therefore be timely and still not produce the result intended.
That is worth checking at the same time, because an election being prepared late is an election being prepared under pressure, and the agreed amount is the part most often got wrong.
Why the Delay Happened Matters for the Discretionary Route
Where acceptance depends on discretion, the circumstances are the argument. A transfer that was properly documented at the time, with an election intended and overlooked, reads very differently from one where the election is being constructed after the fact to fix a tax outcome that has since become inconvenient.
Which is a reason to get the file in order before approaching the matter at all, rather than after.
If you are still planning the transfer, our section 85 rollover calculator works through the agreed amount and the deferral itself, and the rollover guide covers the mechanics.
What This Calculator Does Not Do
- Cover any election other than section 85, whose rules differ entirely
- Decide whether late filing is available on your facts
- Predict a discretionary decision beyond the late-filing period
- Test the agreed amount against the statutory limits
- Calculate recapture or multiple classes of property
- Assess relief from the penalty or from interest
Frequently Asked Questions
Common questions on late-filed section 85 elections.
Related Calculators and Guides
More on section 85 and asset transfers.
A Missed Election Is Usually Still Fixable
If you are inside the late-filing period, this is mechanical and worth doing now. If you are outside it, the case has to be built before it is made. Send us the transfer documents and the dates and we will tell you which position you are in and what it takes.