Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Prior to 1995, a taxpayer carried on a business that had a fiscal period that did not coincide with the calendar year. The taxpayer did not elect to keep the off-calendar year fiscal period but continued to report the business income using the pre-1995 fiscal period. Since 1995 is statute barred, we are asked to respond to some possible solutions.
Position: Barring fraud, misrepresentation, etc., we cannot open the 1995 taxation to include the stub period (from after the end of the usual fiscal period to December 31, 1995) in the taxpayer's 1995 income.
The taxpayer can not now elect to keep an off-calendar fiscal period.
Reasons: The 1995 taxation year will normally now be beyond the "normal reassessment period" of three years and there seems to be no basis in subsection 152(4) of the Income Tax Act for going beyond the three years.
Paragraph 600(b.1) of the Income Tax Regulations permitted a late election providing the request was made on or before January 31, 1998. The paragraph has since been revoked.
March 8, 2000
Ms Linda Smith HEADQUARTERS
Training and Learning Directorate Jacques E. Grisé
Human Resources Branch 957-2059
2000-001117
Fiscal Periods
This is in reply to your E-mail of March 1, 2000 requesting our comments on the fiscal period of a business.
For purposes of illustration, you provided the following situation:
- An individual's business originally had a June 30th year end. The business was carried on in Canada prior to 1995.
- The individual did not make an election pursuant to subsection 249.1(4) of the Income Tax Act to keep the individual's off-calendar year fiscal period.
- The individual continued to report income from the business using a June 30th year end.
- The individual's 1995 taxation year is beyond the "normal reassessment period" set out in section 152 of the Act (i.e., it is statute-barred).
- The 1997 and 1998 taxation years are currently under review.
In our view, the individual should have included the income or loss of the business for the period July 1, 1995 to December 31, 1995 in the individual's 1995 taxation year. This would be in addition to the income or loss from the business for the fiscal period commencing July 1, 1994 and ending on June 30, 1995. Since the individual's 1995 taxation year is now statute-barred, it cannot be opened unless subparagraph 152(4)(a)(i) or (ii) of the Act apply (i.e. fraud, misrepresentation or a waiver). For taxation years after 1995, the individual's fiscal period should coincide with the calendar year. In this respect, please refer to paragraph 249.1(1)(b) and subsection 249.1(3) of the Act.
Subsection 249.1(4) of the Act provides an exception to paragraph 249.1(1)(b) of the Act to allow an individual to elect to maintain an off-calendar year fiscal period. This election must be filed by the individual's filing due date and with the individual's return for the taxation year that includes the first day of the first fiscal period of the particular business that begins after 1994. However, on October 9, 1997, paragraph 600(b.1) was added to the Income Tax Regulations to permit an individual to make a late election in respect of subsection 249.1(4) of the Act, provided the election was filed with the Minister by January 31, 1998. Paragraph 600(b.1) of the Income Tax Regulations has been revoked. Accordingly, it is no longer possible to elect pursuant to subsection 249.1(4) of the Act.
In our view, the suggestion of including a portion of an individual's 1996 income in 1997 and a portion of the individual's 1997 income in 1998 has no basis in law.
Our comments have been restricted to our understanding of the legislation concerning the fiscal period of a business carried on by an individual. We note that your E-mail was also sent to Mr. Ron Boicey from the Technical Applications and Valuations Division of the Verification, Enforcement & Compliance Research Branch. We expect that comments concerning audit procedures and practices will be forthcoming separately from that area.
We hope our comments are helpful
John Oulton
Manager
Business, Property and Employment
Income Section III
Business and Publications Division
Income Tax Rulings Directorate
cc Mr. Ron Boicey
Technical Applications Section
Verification, Enforcement & Compliance
Research Branch
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