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 subsection 249(3) applies to a subsequent fiscal period, where the previous fiscal period exceeds 365 days and subsection 249(3) applied deeming that taxation year to end on the last day of the calendar year.
Position: Yes.
Reasons: Subsection 249(3) applies to deem the subsequent year to commence on the first day of the immediately following calendar year. If a corporation's taxation year is deemed to end on the last day of a particular calendar year under paragraph 249(3)(a), the corporation's next taxation year is deemed to commence on the first day of the immediately following calendar year.
XXXXXXXXXX
2014-056013
G. Godson
April 28, 2015
Dear XXXXXXXXXX:
Re: Change in fiscal period subsection 249(3)
We are writing in reply to your email of December 5, 2014, requesting our comments regarding the application of subsection 249(3) of the Income Tax Act (the "Act").
In your inquiry, you have described a hypothetical situation in which a taxpayer wishes to change its fiscal period from a calendar year to a floating fiscal period, with the first year beginning on January 1, 2014, and ending on January 3, 2015. You would like to know whether the provisions of subsection 249(3) of the Act, with respect to a fiscal period which exceeds 365 days, are applicable to the subsequent fiscal period, beginning on January 4, 2015 and ending on January 1, 2016.
You have explained that, based on our comments in our document 5-933096 and the fact that the subsequent fiscal period will not exceed 365 days, you have concluded that subsection 249(3) is not applicable. As a result, in your view there is no deemed taxation year-end for the subsequent fiscal period.
Our Comments
This technical interpretation provides general comments about the provisions of the Act. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.
Subsection 249(3) of the Act provides that, if a fiscal period of a corporation exceeds 365 days and as a result the corporation does not have a taxation year that ends in a particular calendar year, the corporation's first taxation year that would otherwise end in the calendar year immediately following the particular calendar year, is deemed to end at the end of the particular calendar year.
In the situation described in your inquiry, the taxpayer's first floating fiscal period exceeds 365 days as it begins on January 1, 2014 and ends on January 3, 2015. Further, the taxpayer does not have a taxation year-end that ends in the calendar year. Therefore, subsection 249(3) of the Act applies so as to deem the taxation year-end to be on the last day of the particular calendar year, in this case on December 31, 2014.
With respect to our document 5-933096, since its publication, amendments have been made to the provisions of the Act which address a fiscal period that exceeds 365 days. Subsection 249(3) of the Act was amended in October 2012, which resulted in two changes to the legislation. First, if a corporation's taxation year is deemed to end on the last day of a particular calendar year under paragraph 249(3)(a), the corporation's next taxation year is deemed to commence on the first day of the immediately following calendar year. Second, under paragraph 249(3)(b), if the corporation's fiscal period was more than 365 days, such that paragraph (a) applies to deem the corporation's taxation year to end on the last day of the particular calendar year, the corporation's next fiscal period is deemed to commence on the first day of the immediately following calendar year. Accordingly, a taxpayer will have a taxation year-end in each calendar year.
As a result of these changes to subsection 249(3) of the Act, our views in document 5-933096 with respect to the application of 249(3) to the second fiscal period are no longer valid. In the example you have provided in your inquiry, according to paragraph 249(3)(b), the first fiscal period is deemed to end on December 31, 2014 and the next fiscal period is deemed to commence on January 1, 2015. In addition, paragraph 249(3)(a) would apply to deem the corporation's second taxation year to commence on the first day of the immediately following calendar year, January 1, 2015.
We trust 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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