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 an amount allocated to a corporate partner in respect of a 14(1)(b) amount arising in a fiscal period of a partnership would constitute an addition to the capital dividend account of the corporation immediately after the end of such fiscal period.
Reasons: The paragraph 14(1)(b) amount, in respect of a business of the partnership, would have been determined at the end of the fiscal period of the partnership. For purposes of subparagraph (c.2)(i) of the definition of CDA the addition for the corporate partner's share of such amount would be available for purposes of payment of a capital dividend the day following the end of the partnership's fiscal period.
XXXXXXXXXX A.A. Cameron
June 18, 2007
Re: Capital Dividend Account
We are writing further to your letter of November 16, 2006 requesting a technical interpretation regarding the determination of the amount of a corporation's capital dividend account ("CDA") within the meaning of subsection 89(1) of the Income Tax Act (the "Act").
You refer to a situation involving a partnership, which is a "Canadian partnership" within the meaning of subsection 102(1) of the Act, each of the partners of which is a "Canadian-controlled private corporation" within the meaning of subsection 125(7) of the Act. For its fiscal period ending April 30, 200X, the partnership has included an amount in computing its income under paragraph 14(1)(b) of the Act in respect of the disposition of "eligible capital property" (within the meaning of section 54 of the Act). The partnership has allocated a share of this income inclusion to its partners, each of which has a taxation year-end that is different than the partnership fiscal period. You have asked whether each of the corporate partners would have an addition [under paragraph (c.2) of the CDA definition] to its CDA balance as at April 30, 200X, in respect of its share of this income inclusion that was allocated to it.
Written confirmation of the income 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 as described in Information Circular 70-6R5 dated May 17, 2002 issued by the Revenue Canada Agency (the "Agency"). A fee is charged for this service. The referenced Information Circular and other Agency publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Although, we are unable to provide any comments with respect to a particular fact situation otherwise than in the form of an advance income tax ruling, the following general comments may be of assistance.
Pursuant to subparagraph (c.2)(i) of the definition of CDA in subsection 89(1) of the Act, a corporation's CDA, at any particular time, includes:
...the total of all amounts each of which is an amount required by paragraph 14(1)(b) to be included in computing the corporation's income in respect of a business carried on by the corporation for a taxation year that is included in the period [being the period which commenced at the beginning of the corporation's first taxation year (that began after the corporation last became a private corporation and that ended after 1971) and ending immediately before the particular time] and that ends after October 17, 2000...
Where a taxpayer is a member of a partnership, the taxpayer's income from the partnership for a taxation year is computed in accordance with the rules contained in section 96 of the Act. In particular, pursuant to subparagraph 96(1)(c)(ii) of the Act a determination is made of the income of the partnership from each particular source for each fiscal period of the partnership and paragraph 96(1)(f) of the Act provides that a partner's share of each such amount will be income from that same source to the partner. Consequently, where a private corporation is a member of a partnership, the corporation would include its share of the income of the partnership from a business (which would encompass an amount determined under paragraph 14(1)(b) of the Act in respect of that business) in its income for its taxation year that includes the end of the partnership's fiscal period.
As noted above, subparagraph (c.2)(i) of the definition of CDA aggregates amounts "required by paragraph 14(1)(b) to be included in computing the corporation's income in respect of a business carried on by the corporation for a taxation year that is included in the [relevant] period". In the case of a partnership, its income from a business would be determined for its fiscal period pursuant to section 96 of the Act. As such, a paragraph 14(1)(b) amount in respect of this business would arise at the end of the partnership's fiscal period.
In the situation described above, it is our view that the corporate partner's share of an amount required by paragraph 14(1)(b) of the Act to be included in the partnership's income for its fiscal period ending April 30, 200X would be included in the particular corporate partner's computation of its CDA at the end of the partnership's fiscal period such that it would be available to be paid to the corporate partner's shareholders as a capital dividend on or after May 1, 200X.
We trust that our comments, which are provided in accordance with the practice outlined in paragraph 22 of IC-70-6R5, are of assistance.
Reorganizations and Resources Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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