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 CRA's revised administrative policy for JVs allows transitional relief for the additional income from multi-tiered joint ventures.
Position: In the circumstances described in the submission, likely yes; subject to certain conditions and computational rules.
Reasons: CRA's revised administrative policy for joint ventures.
XXXXXXXXXX
2012-045481
R. Ferrari
August 28, 2012
Dear XXXXXXXXXX:
Re: Multi-tiered Joint Ventures
This is in reply to your email of July 9, 2012 with respect to the Canada Revenue Agency’s (“CRA”) revised administrative policy for participants of a multi-tiered joint venture (“JV”).
The CRA announced in document number 2011-040308, dated June 6, 2011, the withdrawal of its previous administrative policy and advised that taxpayers who had entered into JV arrangements would no longer be eligible to compute income as if a JV had a separate fiscal period. The details of the CRA’s revised administrative policy were presented in document number 2011-042958, dated November 29, 2011. You have provided a hypothetical example and ask whether the additional income from the multi-tied JV arrangement in the example may qualify for transitional relief under the CRA’s revised administrative policy.
In the example provided, a corporation had a tax year end (“TYE”) of March 31, 2011 and is a participant in a joint venture (“JV1”) in which the participants had established a fiscal period end (“FPE”) of April 30. The participants of JV1 also considered JV1 to be a participant in a second joint venture (“JV2”) in which a FPE was established as May 31. There are no other JVs or partnerships in this tiered structure.
The corporation had previously recorded JV1’s income from JV2 in the fiscal period in which JV2’s fiscal period ended and the corporation had reported income from JV1 in the taxation year in which JV1’s fiscal period ended. Accordingly, the income from JV2 for the FPE of May 31, 2009 was recorded in JV1’s FPE of April 30, 2010, which in turn, was reported in the income of the corporation for its TYE of May 31, 2011. As a result of the change in the CRA’s administrative position, the corporation also reported in its TYE of March 31, 2011 the additional income from JV1 for the period from May 1, 2010 to March 31, 2011 (11 months) and from JV2 for the period of June 1, 2009 to March 31, 2011 (22 months).
Our Comments
The CRA revised administrative policy confirmed that 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 including those structures in which the participant taxpayer has taken the position that income was deferred as a result of tiered structures.
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 provided for partnerships under new section 34.2 of the Income Tax Act. Accordingly, in certain conditions, participant taxpayers who are required to report additional income from joint ventures as a result of the CRA’s new administrative policy may be allowed to defer the additional income for a period of up to 5 years. The income that may generally qualify for the transitional relief is based on the actual additional income for the deferral period to the extent the amount would not have otherwise been included in income for the first taxation year of the participant taxpayer that ends after March 22, 2011.
To benefit from the joint venture transitional relief policy for the first tax year ending after March 22, 2011, a participant taxpayer must file an election in writing, on or before the filing due date for that tax year, to their Tax Center. Where that date has passed, the CRA will accept a late-filed election by September 22, 2012. Further information with respect to reporting the income from JVs and filing the election is provided on the CRA’s website at http://www.cra-arc.gc.ca/tx/bsnss/tpcs/crprtns/dfrrl/jntvntr-eng.html.
Based on the particular circumstances described in your email, the additional income for the period from June 1, 2009 to March 31, 2011 (22 months) from JV1 and for the period from May 1, 2010 to March 31, 2011 (11 months) from JV2 could qualify for transitional relief. The CRA’s document 2011-042958, referred to above, and our document 2011-043146 dated January 10, 2012, provides further details as to the conditions and computation rules for transitional relief.
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
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
Email this Content