Subsection 220(3.2) in Practice: Lessons from Sechelt Holdings Inc. v. The King, 2026 TCC 43

Subsection 220(3.2) of the Income Tax Act is widely criticized as a limited and often ineffective relief provision.

Although it appears to offer fairness by permitting late, amended, or revoked elections, in practice it is narrow, discretionary, procedurally rigid, and frequently unavailable where taxpayers most need relief.

The most fundamental limitation is that subsection 220(3.2) applies only to elections made under “prescribed provisions,” effectively those listed in Regulation 600.

Many elections fall outside this closed list, leaving taxpayers without access to relief even where their intention was clear and the failure was inadvertent.

CRA has consistently maintained that subsection 220(3.2) cannot be extended to non-prescribed elections and that other relieving provisions generally cannot be used to fill these gaps.

The provision is also constrained by a strict 10-year application deadline, which CRA treats as an absolute limit on the Minister’s authority. This rigidity can produce harsh results where errors are discovered late, often following audits, disputes, or prolonged reliance on professional advisors.

Even where an election is prescribed and the request is timely, relief remains entirely discretionary.

The statute provides no entitlement to relief, and CRA’s published factors for granting relief are non-binding.

Requests may be denied on the basis that they constitute retroactive tax planning or reflect insufficient care, creating uncertainty and recurring disputes.

A further concern is that a statutory penalty generally applies if relief is granted, sometimes imposing a significant cost merely to correct an honest mistake.

This penalty has been acknowledged as potentially disproportionate, particularly for individuals and smaller taxpayers.

The practical consequences of this discretionary structure were illustrated in Sechelt Holdings Inc. v. The King, 2026 TCC 43.

In that case, the taxpayer sought late-filed election relief under subsection 220(3.2) to obtain replacement property treatment under section 44.

CRA reviewed the request during an audit but ultimately refused to grant the relief and did not issue a reassessment.

The Tax Court held that it had no jurisdiction to hear the appeal because subsection 220(3.2) confers discretion solely on the Minister, and subsection 220(3.4) only authorizes reassessment if that discretion is exercised favourably.

Since no reassessment or “determination” arose from the refusal by the, there was nothing the taxpayer could object to or appeal. The original assessment stood, and the appeal was quashed.

This decision underscores a critical weakness of subsection 220(3.2): where relief is denied, taxpayers may be left without any statutory appeal route, with judicial review as the only possible remedy. It also confirms that the provision does not solve broader statute-barred problems and operates only if the Minister affirmatively grants relief.

Finally, the regime is highly formalistic. Consistent reporting and clear substantive intent generally cannot substitute for a properly filed election. Where the election is not prescribed or discretion is refused, later accounting consistency provides no cure.

Overall, subsection 220(3.2) functions as a limited fairness mechanism rather than a general corrective power. Its closed-list design, rigid timing rules, discretionary uncertainty, penalty exposure, and lack of appealability—highlighted by Sechelt Holdings—often produce harsh outcomes where the taxpayer’s intended tax treatment is obvious but technically unavailable.