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: In a situation where two CCPC's have different tax year ends, would the CRA accept an amended assignment under subsection 125(3.2) in order to correct the amount of the BL assignment when it is known?
Position: Likely yes.
Reasons: See below.
January 29, 2018
Re: Assignment of Business Limit
This is in reply to your correspondence dated July 6, 2017, wherein you requested our views on subsection 125(3.2) of the Income Tax Act (“Act”) in a situation where two corporations have different tax year-ends.
More specifically, you provided an example whereby a Canadian-controlled private corporation (“CCPC”) has a tax year ending on December 31, 2017 and a second CCPC has a tax year ending on November 30, 2018. The second CCPC has income from the first CCPC for its tax year that is referred to in subparagraph (a)(i) of the definition specified corporate income (“SCI”) in subsection 125(7) from the provision of services or property directly to the first CCPC.
When filing the first CCPC’s tax return, the amount of the business limit (“BL”) assignment, which is based in part on the amount of income referred to in subparagraph (a)(i) of the definition SCI in subsection 125(7) of the second corporation during its tax year, will be unknown. Accordingly, you are asking whether the Canada Revenue Agency (“CRA”) would accept an amended BL assignment when the actual amount can be determined.
This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). 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 a particular transaction 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 70-6R7, “Advance Income Tax Rulings and Technical Interpretations.”
Generally speaking, a CCPC (“first CCPC”) may assign all or any portion of its BL to another CCPC (“second CCPC”) if certain conditions are met. The condition in paragraph 125(3.2)(b) provides that the first CCPC may assign a portion of its BL for a year that ends in the tax year of the second CCPC during which the second CCPC has income from the first CCPC. The amount of the BL that the first CCPC’s may assign to the second CCPC is based in part on the second CCPC’s amount of income for its tax year that is referred to in subparagraph (a)(i) of the definition SCI in subsection 125(7) from the provision of services or property directly to the first CCPC.
In order for a BL assignment under subsection 125(3.2) to be valid, each CCPC is required to file a prescribed form with the Minister of National Revenue for their respective tax years. These forms are the T2 Corporation Income Tax Return for the corporation assigning BL and Schedule 7 “Aggregate Investment Income and Active Business Income” for the corporation receiving the BL assignment.
As you correctly identified, in circumstances where the first CCPC and the second CCPC have different tax year-ends, the amount of the BL available to be assigned may be unknown at the end of the first CCPC’s tax year. In this situation, a reasonable effort to compute an amount would be required at the time of filing the first CCPC’s tax return. When the actual amount is known (e.g., after November 30, 2018), a revised BL assignment would generally be accepted by the CRA, provided that the tax year is not statute-barred.
We trust that these comments will be of assistance.
Katie Robinson, CPA, CA
Business Income and Capital Transaction Section
Business and Employment Division
Income Tax Rulings Directorate
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, 2018
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, 2018