12 April 2012 External T.I. 2012-0436121E5 - ASPA, QTI and significant interest

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. Where a corporation has a significant interest in a partnership, which taxation year will the corporation be required to compute and include ASPA in its income? 2. For which taxation year is ASPA eligible as QTI in a single-tier partnership structure?

Position: 1. Where the conditions for the computation of ASPA have otherwise been met, ASPA is required to be computed where the corporation has a significant interest in the partnership at the end of the last fiscal period of the partnership that ends in the corporation's taxation year. 2. The corporation's first taxation year that ends after March 22, 2011.

Reasons: 1. The preamble to the definition of ASPA in subsection 34.2(1). 2. Subparagraph (b)(ii) of the definition of QTI in subsection 34.2(1).

XXXXXXXXXX
				R. Ferrari
				2012-043612

April 12, 2012

Dear Ms. XXXXXXXXXX :

Re: Adjusted stub period accrual and qualifying transitional income

This letter is in reply to your email of February 8, 2012 wherein you requested our views on the application of “adjusted stub period accrual” (“ASPA”), “qualifying transitional income” (“QTI”) and “significant interest” as defined under new subsection 34.2(1) of the Income Tax Act (the “Act”.)

In the hypothetical example provided, a corporation has a taxation year end (“TYE”) of July 31 and is a member in a single-tier partnership that has a fiscal period end (“FPE”) of August 31. The corporation does not currently have a “significant interest” in the partnership as defined in subsection 34.2(1) of the Act. In August 2012, the corporation will acquire an additional interest, so that it will have a significant interest in the partnership at August 31, 2012. In August 2013, the corporation will dispose of a portion of its interest in the partnership so that it will no longer hold a significant interest in the partnership at August 31, 2013.

You ask for which taxation years the corporation will be required to compute and include ASPA in its income and whether the corporation will have income that is eligible for QTI.

Our Comments

Our reply is based on the assumption that where your submission identifies the corporation has a significant interest in the partnership, that the conditions stipulated in the definition of significant interest in subsection 34.2(1) have been met. We have also assumed that where it is indicated that a significant interest in the partnership exists, that all of the conditions required for the calculation of ASPA as provided for in the definition of ASPA under subsection 34.2(1) have been met and that the conditions stipulated for the inclusion of the ASPA amount in the corporation’s income as provided for under section 34.2 and subsection 34.2(2) have application.

The preamble to the definition of ASPA provides a condition, inter alia, that ASPA will be computed where, “the corporation has a significant interest at the end of the last fiscal period of the partnership that ends in the corporation’s taxation year.” The FPEs of the partnership for August 31, 2010 and August 31, 2011 are the last fiscal periods that end in the corporation’s TYEs for July 31, 2011 and July 31, 2012, respectively. Since the corporation will not hold a significant interest at the end of the partnership’s fiscal periods, ASPA is not required to be computed for the corporation’s TYE of July 31, 2011 and July 31, 2012.

The FPE of the partnership for August 31, 2012 will be the last fiscal period that ends in the corporation’s TYE of July 31, 2013. The corporation will acquire an additional interest in the partnership in August 2012 such that it will have a significant interest in the partnership at August 31, 2012. Accordingly, ASPA will be required to be computed under paragraph (a) of the definition of ASPA and included in the corporation’s income for its TYE of July 31, 2013.

Section 34.2 provides for transitional relief for QTI as defined in subsection 34.2(1), which may include certain ASPA amounts. The definition of QTI indicates that where the partnership is not subject to a multi-tier alignment, subparagraph (b)(ii) of the definition QTI applies. Subparagraph (b)(ii) provides that QTI will include the corporation’s ASPA in respect of the partnership for the corporation’s first taxation year that ends after March 22, 2011. Since the corporation’s TYE of July 31, 2013 is not the corporation’s first taxation year that ends after March 22, 2011, the ASPA amount for this taxation year will not be eligible as QTI.

The FPE of the partnership for August 31, 2013 will be the last fiscal period that ends in the corporation’s TYE of July 31, 2014. Since the corporation will not hold a significant interest at the end of the partnership’s fiscal period, ASPA will not be required to be computed for the corporation’s TYE of July 31, 2014.

We trust our comments above are of assistance.

Yours truly,

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