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11650-6 (pl)
Section 253
Dear Mr. XXXXX
Thank you for your facsimile transmission dated February 13, 1996, in which you request a GST interpretation of section 253 of the Excise Tax Act (the "ETA") in reference to the deemed December 31, 1995 year-end change proposed for certain partnerships under the Income Tax Act (the "ITA").
Statement of Facts:
In your facsimile you provide the following facts for our consideration:
• A partnership with a January 31 year-end is required under a proposed income tax amendment (i.e., new paragraph 249.1(1)(b) of the ITA) to adopt a December 31 year-end for the 1995 and subsequent taxation years;
• In calculating the employee and partner GST rebate pursuant to section 253 of the ETA (the "GST rebate") for the 1995 taxation year, the members of the partnership (the "partners") must first determine, in your opinion, the eligible expenses deducted for income tax purposes for the period February 1, 1994 to January 31, 1995;
• For the period February 1, 1995 to December 31, 1995, each partner will compute their share of the partnership income and will claim, pursuant to the proposed amendment to the ITA, a transitional reserve spreading their partnership income over XXXXX[.] You believe that the GST rebate calculation for this period would be based on the eligible expenses deducted in the period by the partner for income tax purposes less any amount claimed as a reserve by the partner;
• You also provided in your facsimile the following illustrative example of a partner's GST rebate claim for 1995 based on the aforementioned facts:
XXXXX
XXXXX
XXXXX
XXXXX
Your questions are:
• whether the above interpretation (and illustrative example) is correct; and if so,
• whether the Department would consider allowing a full GST rebate in respect of the eligible expenses incurred in the second period (i.e, from Feb. 1, 1995 to Dec. 31, 1995) to be claimed in the 1995 taxation year rather than over the ten year transitional period.
Department's Position:
In general, section 253 of the ETA provides that where an individual who is a member of a registered partnership or who is an employee of a registrant (other than a listed financial institution) acquires or imports taxable supplies which were deducted under the ITA in computing the individual's income for the year from an office or employment or from the partnership, and in respect of which the individual did not receive a reasonable allowance from the employer or partnership, the individual may be eligible for the GST rebate.
It is our understanding that proposed subsection 249.1(1) of the ITA introduces new restrictions on the timing of fiscal periods. More specifically, under new subparagraph 249.1(1)(b)(ii) of the ITA where certain conditions exist, a fiscal period of a partnership may not end after the end of the calendar year in which the period began. This provision is applicable for periods commencing after 1994. Since most partners would then be required to report more than twelve months of partnership income in the 1995 taxation year, proposed section 34.2 of the ITA provides transitional relief for some of the additional income. That provision operates to recognize a tax attribute (defined as the "December 31, 1995 income") determined by a formula which permits a deduction in 1995 of up to 95% of that defined amount. (Note that a negative amount determined by this formula is deemed to be nil.)
It is also important to mention that the "December 31, 1995 income" amount is calculated based on the partner's income from the partnership after deducting the expenses incurred by the partner to earn partnership income (known as the "partner level expenses") claimed on a fiscal period basis. Accordingly, since the GST rebate is based on the partner level expenses that were deducted under the ITA in computing the partner's income for the year, the rebate claim for 1995 is not affected by the computation of the "December 31, 1995 income" amount.
Furthermore, it is also our understanding that for income tax purposes, partner level expenses deducted against the partner's share of the partnership income (known as the taxpayer's profit under subsection 9(1) of the ITA) is based on the fiscal period of the partnership rather than on a calendar year basis. However, Taxation will permit the deduction of partner level expenses based on the calendar year regardless of the fiscal period of the partnership (Interpretation Bulletin IT-138R: Computation and flow-through of partnership income, paragraph 14).
Having said this, the proposed new income tax provisions explained above have the effect of accelerating the partner level expenses deductible in the 1995 taxation year. Again, since the GST rebate is triggered by the partner level expenses deducted in computing the income of the partner for the year, the partner's rebate claim for 1995 is affected accordingly (i.e., also accelerated). More specifically and referring to your illustrative example, the partner will be entitled to a full GST rebate (provided that all the other conditions under section 253 of the ETA are satisfied) for the 1995 taxation year equal to XXXXX calculated as follows:
XXXXX
XXXXX
XXXXX
XXXXX
This interpretation is based upon our current understanding of the ETA and Regulations thereunder in their present form and does not take into account the effects of any future amendments thereto or future changes in interpretation.
Further, while we trust that our comments are of assistance to you, we would advise that they do not constitute a GST ruling and are, therefore, not binding upon the Department in respect of any particular fact situation.
If you require further information, please contact Michael Matthews, A/Manager, ITC and Co-ordination Unit at (613) 952-8806, or Paul Lafond, Policy Officer at (613) 954-9700.
Yours truly,
H.L. Jones
Director
General Applications Division
GST Rulings and Interpretations
GAD #: 2746 (GEN)
| c.c.: |
M. Matthews
P. Lafond |
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