29 July 2002 External T.I. 2002-0146715 - FYE JOINT VENTURE

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Whether the CCRA's administrative position on joint venture fiscal year-ends, announced in question 40 at the 1989 Round Table, will apply in a specific case so that the joint venture can have a fiscal year-end different from its participants, and a corporate participant can report its share of income from the joint venture for the fiscal period of the joint venture ending in or coincident with its taxation year.

Position:

Unable to provide definitive comments.

Reasons:

There must be a valid business reason for this administrative position to apply - insufficient information provided to make such a determination. The local TSO would be in the best position to provide assistance.

XXXXXXXXXX 2002-014671

Randy Hewlett, B.Comm.

July 29, 2002

Dear XXXXXXXXXX:

Re: Fiscal Year End of Joint Venture

We are writing in response to your letter dated May 8, 2002, wherein you requested our opinion with respect to the taxation year in which a corporation participating in a joint venture would report its share of income.

In your letter, you indicate that a corporation with a July 31 fiscal year-end is a participant in a joint venture that has a September 30 fiscal year-end. Other participants in the joint venture include seven individuals, a corporation in the real estate business that has a March 31 fiscal year-end and a bare trustee corporation acting on behalf of an individual.

The only activity carried on in common by participants under the guise of the joint venture is holding a parcel of vacant land. In XXXXXXXXXX 2002, the land was sold. There was no income generated by the joint venture participants from their activities carried on in common prior to the sale of the land. As consideration for the sale of the land, cash and an interest-bearing mortgage were received. The mortgage is payable over a XXXXXXXXXX-year period, interest is only payable in the final XXXXXXXXXX years.

You inquire whether the corporation with the July 31 fiscal year-end must report its share of the joint venture income derived from the gain on the sale of the land in its July 31, 2002 or July 31, 2003 taxation return.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office (TSO). However, we offer the following comments.

As noted in your letter, the Canada Customs and Revenue Agency may allow a joint venture to establish its own fiscal period that may differ from the fiscal year-end of the joint venture participants. As such, each corporate participant would include in its income for a given taxation year, its share of the income of the joint venture for the fiscal period of the joint venture ending in or coincident with its taxation year. This is an administrative position, intended to apply primarily to situations where the participants in a joint venture have different fiscal periods and there is a valid business reason that justifies a separate fiscal period for the joint venture.

In the absence of all the facts and circumstances surrounding the situation you describe, we are unable to comment whether there is a valid business reason to which this administrative position would apply. The Verification and Enforcement Division of the relevant TSO for the joint venture participants would be in a better position to provide assistance in this regard, as they would be more familiar with the business operations of each participant and the joint venture.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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