9 September 2005 External T.I. 2004-0091711E5 - Business limit year - 125(3)

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.

Principal Issues: 1) What is the statutory authority for specifying "calendar year" in line 50 of T2SCH23; 2) Whether term "year" referenced in subsection 125(3) means "taxation year" or "the calendar year that includes the fiscal period of a corporation that ends in that calendar year of each associated corporation"

Position: 1) 249(1); 2) taxation year

Reasons: 1) definition of taxation year in 249(1) states that where taxation year is referred to by reference to a calendar year, the reference is to the taxation year or years coinciding with, or ending in the calendar year. 2) When read in conjunction with subsection 125(2), the reference to "year" in subsection 125(3), means "taxation year".

2004-009171
XXXXXXXXXX Darlene Green
(613) 957-2082
September 9, 2005

Dear XXXXXXXXXX:

Re: T2 - Schedule 23 - Agreement Among Associated Canadian-Controlled
Private Corporations to Allocate the Business Limit
Subsection 125(3) - Associated Corporations

This is in response to your email correspondence of August 19, 2004 posing questions relating to T2 - Schedule 23 - Agreement Among Associated Canadian-Controlled Private Corporations to Allocate the Business Limit, and the wording of subsection 125(3) of the Income Tax Act (the "Act"). We regret the delay in our response.

Specifically, you ask for the statutory authority for specifying, in line 50 of Schedule 23, the "calendar year" to which the agreement applies. Second, you ask whether the reference to the term "year" in subsection 125(3) means "taxation year" or "the calendar year that includes the fiscal period of a corporation that ends in that calendar year of each associated corporation?" Finally, with support of a reference to subsection 125(5), you suggest amended wording for subsection 125(3) to clarify the meaning of "year" appearing in subsection 125(3) to be that of the latter description noted above.

Our comments:

Subsection 37(1) of the Act defines a "year" to be any period of twelve consecutive months, except that reference to "calendar year" means a period of twelve consecutive months commencing on January 1.

Subsection 249(1) of the Act defines the term "taxation year", in the case of a corporation, as a fiscal period. Said subsection continues that, when a taxation year is referred to by reference to a calendar year, the reference is to the taxation year or years coinciding with, or ending in, that year.

Subsection 249(1.1) of the Act defines "fiscal period" to mean the period for which the person's or partnership's accounts in respect of the business or property are made up for purposes of assessment under the Act, but where, in the case of a corporation, no fiscal period may be longer than 53 weeks.

For the purpose of section 125, subsection 125(2) identifies the business limit for a corporation for a taxation year. Subsection 125(3) provides that all associated Canadian -controlled private corporations may, by agreement, assign a percentage of the business limit to one or more of them, for the year.

In response to your second question and as outlined above, when read in conjunction with subsection 125(2), the reference to "year" in subsection 125(3), means "taxation year".

It then follows that, for purposes of allocating the business limit amongst associated Canadian controlled private corporations, the reference to "calendar year" specified at line 50 of T2 Schedule 23 means "taxation year or years coinciding with, or ending in, that year" in accordance 249(1) of the Act.

Therefore, in reply to your first question, the statutory authority for specifying, in line 50 of Schedule 23, "calendar year" to which the agreement applies is subsection 249(1) of the Act.

Finally, you suggest amendment, and provide alternative wording to subsection 125(3) for clarity. Please note that the CRA's role is to administer current tax laws and to provide information about how current tax laws are interpreted and applied. The Department of Finance Canada is responsible for federal tax policy and legislation.

We trust that our comments will be of assistance to you. However, as stated in paragraph 22 of Information Circular 70-6R5, the opinion expressed in this letter is not a ruling and consequently is not binding on the CRA.

Yours truly,

Phil Jolie
Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch