13 March 2012 External T.I. 2012-0432111E5 - Revised joint venture policy

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) Whether participants in a JV may prorate CCA over a period longer than 12 months that encompasses the stub period, in computing their eligible income for transitional relief; 2)Whether participants in a JV can estimate their eligible income for transitional relief then adjust this figure once the amount is ascertained;

Position: 1) Yes. 2) Yes.

XXXXXXXXXX
										2012-043211

March 13, 2012

Dear XXXXXXXXXX :

Re: Revised Administrative Policy for Participants in Joint Ventures

This is in response to your email of December 23, 2011, wherein you requested our views relating to the revised administrative policy for participants in joint ventures (JV).

The CRA's previous administrative policy was announced at the 1989 Canadian Tax Foundation Conference. It had allowed, on an administrative basis, participants of the JV to establish a fiscal period for the JV that differed from the fiscal periods of the participants where the participants had different fiscal periods and there was a valid business reason that justified a separate fiscal period for the JV. Where a participant had relied on this administrative policy, the income earned by a taxpayer as a participant (participant taxpayer) of the JV was allowed to be included in the participant taxpayer's income for the taxation year in which the fiscal period of the JV ended.

As a result of the 2011 Budget proposals to eliminate the deferral of income from partnerships, the CRA announced the withdrawal of this administrative policy and advised that taxpayers who had entered into JV arrangements would no longer be eligible to compute income as if the JV had a separate fiscal period. (See our document number 2011-040308, dated June 6, 2011.) The CRA subsequently announced the revised administrative policy in document number 2011-042958.

Deferred Income and Related Capital Cost Allowance

Document 2011-042958 confirms participant taxpayers of JVs will be expected to include in income all amounts in the first taxation year ending after March 22, 2011 that had been deferred as a result of fiscal periods that differed from the taxation years of the participant taxpayer.

With respect to the revised JV administrative policy and transitional relief, you are asking whether capital cost allowance ("CCA") should be prorated over a period longer than 12 months that encompasses the stub period. For purposes of calculating the net income for the stub period in accordance with the revised JV administrative policy, the CCA would be allowed based on the period of the incremental income inclusion, as long as all the stub period income is reported on the JV participant's return. For example, if in the case where there was a 12 month period and a 6 month stub period, the CRA recommends that the CCA be computed separately for the 12 month period and 6 month period. (i.e., not simply based on an 18 month period).

Transitional Relief: Actual Amounts and Estimated Amounts for Stub Period

There can be significant incremental income that is required to be included in the income of a participant taxpayer of a JV for the first taxation year of the participant taxpayer ending after March 22, 2011 as a result of the change in the CRA's administrative policy. Subject to certain conditions, the revised administrative policy provides for transitional relief with respect to this additional income.

You are asking whether it is acceptable for JV participants to estimate their eligible income to the best of the JV participant's ability for transitional relief if actual financial data is not available at the time of filing the JV participant's return. Subsequently, the JV participant would adjust the estimated figures once the actual amounts are ascertained and available and the stub period income transitional relief would be adjusted accordingly. The CRA will generally accept estimated amounts to be corrected to actual amounts for purposes of the stub period income reporting and amend the transitional relief accordingly as long as the JV participant requests that the CRA amend the relevant return on a timely basis. Note that in order for an election for transitional relief to be accepted, the amount of deferred income being brought into income as well as the amount of the transitional relief being sought must be specified in the election.

We trust that these comments will be of assistance.

Yours truly,

G. Moore
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch