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 corporate partner in a SIFT partnership must include its share of the gross revenue and salaries and wages of the SIFT partnership in its calculation of income earned in a province pursuant to subsection 402(3) of the Regulations.
Position: Yes.
Reasons: There is nothing in the Regulations that would exclude the gross revenue and salaries and wages from the calculation.
XXXXXXXXXX
2012-046051
T. Young
August 7, 2013
Dear XXXXXXXXXX:
Re: Allocation of Taxable Income Earned in a Province
We are replying to your email of August 27, 2012, concerning the application of subsection 402(6) of the Income Tax Regulations (the "Regulations") to income received by a corporation from a specified investment flow-through ("SIFT") partnership as defined in subsection 122.1 of the Income Tax Act (the "Act"). We apologize for the delay in responding to your enquiry.
Generally speaking, where a SIFT partnership has taxable non-portfolio earnings, as defined in subsection 197(1) of the Act, subsection 96(1.11) of the Act deems the partnership to have received a dividend from a taxable Canadian corporation equal to the excess of the taxable non-portfolio earnings in excess of the Part IX.1 tax payable by the partnership.
Part IV of the Regulations contains the rules for calculating a corporation's taxable income earned in the year in a province. In particular, subsection 402(6) of the Regulations provides that the corporation include in gross revenue and salaries and wages for the year, its proportionate share of these amounts based on its share of the partnership's income or loss for the fiscal period ending in the corporation's taxation year.
You have asked us whether a corporation that is a member of a SIFT partnership is required to include in calculating its gross revenues and salaries and wages its proportionate share of the SIFT partnership's gross revenues and salaries and wages in accordance with subsection 402(6).
As you noted in your email and in our discussion, the inclusion of the corporation's proportionate share of the SIFT partnership's gross revenues, or salaries and wages, with its own respective amounts for this purpose would seem to be redundant and could distort the allocation of income since a SIFT partnership that is subject to tax under Part IX.1 of the Income Tax Act is itself required to allocate its non-portfolio earnings between provinces in which it has a permanent establishment in determining its provincial SIFT rate. On the other hand, subsection 402(6) of the Regulations does not appear to make any distinctions between non-portfolio earnings of a SIFT partnership and any other income of the SIFT partnership, or between SIFT partnerships and other partnerships.
We agree with your conclusion that subsection 402(6) provides that a corporation's proportionate share of a SIFT partnership's gross revenue and salaries and wages is to be included in the corporation's gross revenue and salaries and wages in subsection 402(3) of the Regulations notwithstanding the fact that some or all of the SIFT income might be subject to Part IX.1 tax. While you have indicated that from a policy perspective, the gross revenue and salaries and wages relating to the SIFT partnership's non-portfolio earnings should be excluded, we note that the legislation does not provide for that result.
We trust that these comments will be of assistance.
Yours truly,
Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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