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 subsection 34.2(14), which provides for a deemed continuity of interest in certain situations for purposes of allowing partners to claim the QTI reserve even if they have disposed of their interest in the particular partnership, would be extended to joint venture participants that dispose of their interests in a joint venture to allow them to continue to claim the "QTI" reserve for joint ventures.
Reasons: The QTI reserve for joint ventures is an administrative position, and a joint venture participant will have to include any remaining balance in the reserve at the end of a taxation year in which it no longer holds an interest in the joint venture.
J. Gibbons, CGA
July 3, 2012
Re: Joint Ventures and Subsection 34.2(14)
This is in reply to your email dated December 14, 2011, concerning the above-noted issue.
In particular, you wish to know whether subsection 34.2(14) of the Income Tax Act (the “Act”) will be extended to joint ventures. In this regard, you describe a situation in which a joint venture participant transferred its undivided interest in the underlying property of a joint venture to a partnership or to a corporation. You indicate that reorganizing in this way would allow the joint venture to adopt a single fiscal period; however, you wish to know whether the joint venture would be able to continue to deduct any remaining qualifying transitional income reserve.
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 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Also, where the particular transactions are completed, the inquiry should be addressed to a particular Tax Services Office. Nonetheless, we are prepared to offer the following general comments.
As announced by the Canada Revenue Agency (“the CRA”) in document 2011-042958, joint ventures are no longer allowed to adopt separate fiscal periods. More specifically, for taxation years ending after March 22, 2011, taxpayers who participate in joint ventures will be required to report income from a joint venture based on their own particular fiscal periods. Since this may result in the inclusion of significant income for the first taxation year of a joint venture participant ending after this date, the CRA also announced that it would allow, on an administrative basis, transitional relief similar to the relief under section 34.2 of the Act for partnerships. Accordingly, taxpayers who are required to report additional income from a joint venture as a result of the CRA’s new administrative policy would be allowed to defer the additional income over a 5 year period.
In our view, if a taxpayer is no longer a participant in a joint venture at the end of a particular taxation year, the taxpayer would no longer qualify for the reserve outlined in the preceding paragraph and would have to include any balance remaining of that reserve in income in that taxation year. Further, the rule in subsection 34.2(14) of the Act that permits partners to qualify for the QTI Reserve in respect of a partnership in some cases even though they are no longer members of that partnership at the end of a taxation year will not be extended to joint venture participants.
We trust these comments will be of assistance.
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2012
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2012