15 August 1990 Internal T.I. 9017647 F - Initial Circulation, T5013(S)

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.

SUBJECT: Initial Circulation T5013(S)

This is in response to your request of July 30, 1990 to review the above-noted form and related backprint.  We are not aware of any pending amendments which would impact on it.  The comments we have made are as follows:

1.     Box C has been revised to read as "actual" dividends which definitely is clearer to the average taxpayer than "taxable amount", however it fails to refer to the dividend source.  The backprint note states that line 120 on the T1 return is being referred to, therefore Box C should read as "Actual Dividends from Taxable Canadian Corporations".  Lastly it should be indicated that where the partner is an individual, actual dividends must be increased by 25% for reporting purposes.

2.     Box I, backprint note directs the taxpayer to carry the capital gains/losses to line 533 of Schedule 3 of the T1 return.  This line is very general and does not provide a breakdown of the various types of capital gains and losses which may affect other provisions of the Income Tax Act such as losses from LPP or gains from Qualified small business corporations or Qualified farm property.  A detailed breakdown should be required.

3.     Box O refers to "Income Tax".  Most taxpayer's having more than one source of income may be puzzled as to what income this is referred to.  A backprint note to the effect that this represents income taxes withheld on the taxpayer's share of partnership income would clarify.

4.     Box S refers to total CCA claimed presumably at the partnership level.  At first glance it appears too general to provide a valuable aid to taxpayers or other sources of information.  Perhaps its use would be better served as additional information on a T5013 memo, however if it is to remain as an integral component its use should be indicated.

5.     Box T refers to subsection 37(1) expenditures (R and D).  The initial impression is that these expenditures reduce the overall income or create or increase the overall loss in respect of "Canadian and Foreign business income/loss" at Box A, however, this result will vary depending on the status of the particular partner as follows:

A.       Active General partners are not restricted as to R and D induced losses or Investment tax credits on R and D (Qualified Expenditures at subsection 127(9)).

B.      Inactive General partners (partners falling within paragraph 248(1)(b) of the definition of a "Specified  member") are not restricted as to R and D induced losses however they are prevented from being allocated investment tax credits on R and D by virtue of paragraph 127(8)(b) and since investment tax credits on R and D would reduce the R and D pool (Section 37) directly in the year they are earned by virtue of subsections 127(8), (12) and (12.1) their R and D claims, which by paragraph 96(1)(e.1) cannot be carried forward, will exceed that of the active general partners, on a pro-rata basis, by the amount of investment tax credits allocated on the partnership's expenditures on R and D.

C.       Limited partners face the same restrictions on investment tax credits earned on R and D as inactive general partners meaning their portion of the partnership's R and D pool, on a pro-rata basis, will be higher than that of the active general partners, however paragraph 96(1)(g) limits their losses to the extent derived from R and D expenditures incurred by the partnership (section 37).

     Furthermore, it should be noted that the term R and D would  be clearer than subsection 37(1) expenditures because it also includes applicable expenditures at subsection 37(2)  and is more widely recognized than a specific income tax act reference.

     In summary, the purpose and relevancy of this information should, considering the complexities indicated above, be scrutinized.  A decision to retain Box T should be fully supported by appropriate explanations.

6.     Backprint; General.  The backprint selectively comments on some of the boxes on this form, for informational purposes would it not be more appropriate to comment, at least briefly, on all boxes?

7.     Backprint Box J refers to a two-thirds ratio applied to a business investment loss to obtain an allowable business investment loss however the rate for 1990 is three-quarters for individuals and trusts (other than testamentary trusts).  Other partners such as corporations and testamentary trusts whose taxation years end after 1987 and commence before 1990 are required to recalculate their portion of the partnership's taxable capital gains, allowable capital losses and allowable business investment losses in accordance with subsection 96(1.7).  The purpose of this subsection is to equate the taxable or allowable portion of the gain or loss to that which would have been determined had the partner realized it directly rather than through a partnership.

As a final note, C. Walsh has recently advised us to ignore the hand-written adjustment to Box Q on the T5013 Supplementary as this was made in error.

If you have any questions, please do not hesitate to contact us.

Bernhard BuetowChiefTechnical Review SectionTechnical Publications DivisionLegislative Affairs Directorate

GD/hm(56-58) COR "C"