18 January 1994 External T.I. 9330965 F - Deemed Taxation Year

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.

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Attention:  XXXXXXXXXX

Dear Sir\Madam:

RE:  Application of Subsection 249(3) of the Income Tax Act

This is in reply to your facsimile of October 27, 1993 wherein you requested our comments on your interpretation of "taxation year" in section 249 of the Income Tax Act (the "Act") and "fiscal period" in section 248 of the Act. You have asked us to consider the following hypothetical situation.

1.     Company A has a fiscal year commencing on December 29, 19X1 and ending on January 2, 19X3.

2.     Company A's following fiscal period commences January 3, 19X3 and ends on January 1, 19X4.

It is your opinion that subsection 249(3) of the Act applies in respect of the fiscal period ending January 2, 19X3 to deem the taxation year to end on December 31, 19X2 and the results for January 1 and 2, 19X3 will be included with and reported in the taxation year deemed to end on December 31, 19X2.

The following fiscal period of Company A will run from January 3, 19X3 to January 1, 19X4. As this fiscal period does not exceed 365 days, subsection 249(3) of the Act will not apply to deem a year-end on December 31, 19X3, thereby resulting in the company not having a taxation year-end in the calendar year 19X3.

Your interpretation of subsection 249(3) of the Act suggests that all of Company A's activities occurring on January 1 or 2, 19X3 would be deemed to have occurred during the taxation year ending December 31, 19X2. This interpretation would produce the following implications:

i)     A shareholder loan made on January 2, 19X3, not satisfying one of the exemptions listed in paragraph 15(2)a) of the Act, would have to be repaid by December 31, 19X3 rather than January 2, 19X4, to avoid being included in computing the shareholder's income for 19X3.

ii)     An amount to which subsection 78(4) of the Act would otherwise apply would have to be paid by the day that is 180 days after December 31, 19X2 rather than 180 days after January 2, 19X3.

iii)     The corporate tax return would be due on June 30, 19X3 rather than July 2, 19X3.

You have asked whether or not Revenue Canada concurs with your interpretation.

Our Comments:

We agree with your interpretation of subsection 249(3) in the above situation. We also agree that in the circumstances, this produces the implications noted in points (i), (ii) and (iii) above, since subsection 249(3) of the Act applies for the purposes of the Act.

These comments represent an expression of an opinion on the application of the Act and are not binding on the Department, as explained in paragraph 24 of Information Circular 70-6R.

The opinions expressed herein are provided pursuant to the practice referred to in paragraph 24 of Information Circular 70-6R.

We trust our comments will prove helpful.

Yours truly,

for DirectorReorganizations and foreign divisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch