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: Whether individuals who are former partners and who have a residual interest as defined in subsection 98.1(1) of the Act or have been allocated a share of income pursuant to subsection 96(1.1) of the Act are members of the Partnership for the purpose of determining whether the Partnership must file in the time frame set out in paragraph 229(5)(a) of the Regulations, which applies where all members are corporations.
Position: No, the individuals are not members for this purpose.
Reasons: Paragraph 98.1(1)(d) of the Act deems the former partner not to be a member, except for certain specified purposes which do not include subsection 229(5) of the Regulations.
Subsection 96(1.1) of the Act deems the taxpayer to be a partner only for the purposes of subsection 96(1), sections 34.1, 34.2, 101, 103 and 249.1 of the Act and not for the purpose of subsection 229(5) of the Regulations.
November 30, 2004
Ottawa Technology Centre HEADQUARTERS
Lucie Vermette, CGA
(613) 957-2092
Mrs. Francine Dupuis
2004-009551
Late filing penalty - T5013
We are writing in reply to your September 16, 2004 memorandum concerning the XXXXXXXXXX (the "Partnership") and the late filing penalty assessed in connection with its annual partnership information return.
FACTS
The Partnership has a XXXXXXXXXX, fiscal year end. For the XXXXXXXXXX taxation years, the Partnership filed its information return on XXXXXXXXXX.
In those years, members of the Partnership were corporations. Moreover, two individuals (former retired partners) and an estate had an amount of income allocated to them by the Partnership. That amount could represent a residual interest as set out in subsection 98.1(1) of the Income Tax Act (the "Act") or a right to a share of the income or loss of the Partnership under an agreement referred to in subsection 96(1.1) of the Act.
QUESTION
You want to know if the Partnership is required to file the information return within the time frame set out in paragraph 229(5)(a) of the Income Tax Regulations (the "Regulations") or paragraph 229(5)(c) thereof.
Pursuant to subsection 229(1) of the Regulations, every member of certain specified partnerships at any time in a fiscal period of the partnership is required to make an information return in prescribed form containing the information listed in paragraphs 229(1)(a) to (f). Subsection 229(5) of the Regulations sets out the date by which the information return referred to in subsection 229(1) of the Regulations must be filed.
Paragraph 229(5)(a) of the Regulations applies with respect to a partnership, all the members of which are corporations throughout the fiscal period, whereas paragraph 229(5)(c) of the Regulations applies where the members are not exclusively corporations or exclusively individuals (e.g. a combination of corporations and individuals).
Where a taxpayer has ceased to be a member of a partnership but has a residual interest in the partnership as set out in subsection 98.1(1) of the Act, paragraph 98.1(1)(d) deems the taxpayer not to be a member of the partnership except for certain specified purposes. These specified purposes do not extend to subsection 229(5) of the Regulations.
Where a taxpayer has ceased to be a member of a partnership but an agreement exist to allocate to the taxpayer a share of the income or loss of the partnership as set out in subsection 96(1.1) of the Act, this subsection deems the taxpayer to be a partner only for the purposes of subsection 96(1), sections 34.1, 34.2, 101, 103 and 249.1 of the Act and not for the purpose of subsection 229(5) of the Regulations.
We understand that the late filing penalty was assessed on the basis that the filing requirements of paragraph 229(5)(c) were applicable because the Partnership consisted of both corporate and individual members. In its letter, attached to your memorandum, dated May 14, 2004, the Partnership states that in accordance with the Partnership agreement, certain individuals who retired from the Partnership continue to receive income from the Partnership. In reviewing the material which you supplied, it is not clear whether retired individual partners and the estate have a residual interest in the Partnership as described in section 98.1 of the Act or an allocation of share of income pursuant to subsection 96(1.1) of the Act or both of them.
Whether retired partners and the estate have a residual interest in the Partnership as set out in subsection 98.1(1) of the Act or receive an allocation of share of income pursuant to subsection 96(1.1) of the Act (e.g. an income interest), it is our view that the filing requirements of paragraph 229(5)(a) of the Regulations are applicable in both cases because retired partners and the estate are not considered members of the Partnership for the purpose of that paragraph.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. You should make requests for this latter version to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
If you have any questions, do not hesitate to contact us.
We hope this will be of assistance.
Ghislaine Landry, CGA
Manager
Individual, Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
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