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 a partnership can change its FPE to coincide with the date that certain partners will dispose of their interests in the partnership to simplify the accounting of the stub period income.
Position: Pursuant to subsection 249.1(7), a change in the FPE must be approved by the Minister. However, proposed subsection 96(1.01) deals with the problems of stub period income in the case where a partner disposes of partnership interests.
Reasons: Based on a reading of the law.
XXXXXXXXXX
2012-043328
J. Gibbons, CGA
June 14, 2012
Dear XXXXXXXXXX
Re: Request by a partnership to change fiscal period
This is in reply to your email dated January 16, 2012, concerning a partnership’s ability to change its fiscal period from December 31 to another date. In your letter, you indicated that some of the partners will dispose of their interests to an unrelated party and that ending the fiscal period on the date of disposition would facilitate the allocation of income or loss to the former partners for the “stub period” ending on this date.
Our comments
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 the relevant Tax Services Office. Nonetheless, we are prepared to offer the following general comments.
Subsection 249.1(7) of the Income Tax Act (the “Act”) states that no change in the time when a fiscal period ends may be made for the purposes of the Act without the concurrence of the Minister. In this regard, a request to change the fiscal period end may be submitted for approval to a partnership’s local tax services office.
Notwithstanding the foregoing, with the introduction of proposed subsection 96(1.01) of the Act, a change to the fiscal period of a partnership is no longer necessary to address the problems associated with a disposition of partnership interests in the middle of a fiscal period. This provision, which, as proposed, would generally apply to the 1995 and subsequent taxation years, deems a taxpayer who is a former member of a partnership to be a member at the end of the fiscal period in which the taxpayer ceased to be a member for the purpose of allocating partnership income or loss for that period.
Proposed paragraph 96(1.01)(a) does not require that partnership income or loss be calculated immediately after a member leaves the partnership. Rather, the income or loss allocation, including that of the former member, continues to be calculated after the end of the partnership’s fiscal period. Further, proposed new paragraph 96(1.01)(b) clarifies that an income or loss allocation for the stub period during which a taxpayer was a member is included in the calculation of the adjusted cost base of the partnership interest at the time the former member disposes of the interest or a residual interest.
Since subsection 96(1.01) is proposed legislation, it should be noted that it is the longstanding practice of the Canada Revenue Agency (the “CRA”) to ask taxpayers to file on the basis of such proposed legislation. This practice eases both the compliance burden on taxpayers and the administrative burden on the CRA. An exception to this practice is made where proposed legislation results in an increase in benefits (for example, Canada child tax benefits) to the taxpayer, or if a significant rebate or refund is at stake, in which case the CRA’s past practice has generally been to wait until the measure has been enacted.
We trust these comments will be of assistance.
Yours truly,
G. Moore
for Director
Business and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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