25 June 2012 External T.I. 2012-0448091E5 - Joint Venture policy re no separate fiscal period

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 the adjusted stub period accrual method set out for partnerships in section 34.2 can be used in the case of joint ventures.

Position: No.

Reasons: A joint venture does not have a separate taxation year.

XXXXXXXXXX

										2012-044809
										J. Gibbons, CGA

June 25, 2012

Dear XXXXXXXXXX:

Re: Joint Ventures – Elimination of Fiscal Period and Stub Period Income

This is in reply to your letter dated April 26, 2012, concerning the above-noted issue.

In particular, you have asked us to consider two alternatives for complying with the CRA’s new administrative policy that now requires each participant in a joint venture to calculate its net income from the joint venture for the period ending on the participant’s fiscal period end. This new administrative policy, which came into effect for taxation years ending after March 22, 2011, means that a participant in a joint venture is no longer eligible to compute income as if the joint venture had a separate fiscal period.

Your proposals can be summarized as follows:

(i) Allow joint venture participants the alternative of reporting stub period income in each taxation year in respect of their interests in joint ventures using a formulaic approach similar to the “adjusted stub period accrual” amount used by some members of partnerships under subsection 34.2(2) of the Income Tax Act (the “Act”).

(ii) Allow participants to continue to report estimated stub period income and later amend the amount for actual income when the relevant information becomes available. In this regard, you referred to document E2012-0432111E5, in which we opined that taxpayers could use estimated amounts for calculating the transitional relief.

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 a particular Tax Services Office. Nonetheless, we are prepared to offer the following general comments.

Your first suggestion was addressed previously in document E2011-0431271E5. The CRA’s revised administrative policy does not provide for a formulaic approach to compute stub period income for participants of joint ventures. Thus, actual income earned through joint ventures is required to be calculated by each participant based on that participant’s fiscal period or taxation year.

With regard to your second suggestion, the Act provides taxpayers with sufficient time after the end of their taxation years to compute their income from a joint venture. For example, under paragraph 150(1)(a) of the Act, a corporation has 6 months from the end of its taxation year in which to file its corporate income tax return.

It is our view that taxpayers who participate in a joint venture in a particular taxation year are required to report the actual income earned from that joint venture for the period coinciding with the participant’s particular taxation year.

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