CRA generally will accept amended business-limit assignments under s. 125(3.2) where the limit was initially indeterminate

Under the “specified corporate income” (SCI) rules in s. 125, active business income earned by a Canadian-controlled private corporation (the “second CCPC”) from providing services or property to a non-arm’s length person described in the SCI rules is not eligible for the small business deduction (SBD). However, such excluded income may still be eligible for the SBD if another CCPC (the “first CCPC”) that receives services or property from the second CCPC assigns a portion of its business limit (not exceeding the excluded income that the second CCPC earned from the first CCPC in its taxation year in which the first CCPC’s taxation year ended) to the second CCPC pursuant to a prescribed form filed with its return.

CRA was asked to address the situation where the taxation year of the second CCPC (on November 30) ends 11 months after the taxation year of the first CCPC (on December 31), so that at the time for filing the prescribed form, the first CCPC cannot yet know what is the maximum permitted business limit assignment. Would the CRA accept an amended BL assignment when the actual amount can be determined? CRA responded:

[A] reasonable effort to compute an amount would be required at the time of filing the first CCPC’s tax return. When the actual amount is known (e.g., after November 30, 2018), a revised BL assignment would generally be accepted by the CRA, provided that the tax year is not statute-barred.

Neal Armstrong. Summary of 29 January 2018 External T.I. 2017-0713051E5 under s. 125(3.2).