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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
1. Fiscal year-end changes to calendar year. Can the new 10 year reserve, in draft subsection 33(4), be carried from a partnership to a proprietorship?
2. Are certain businesses "similar businesses"?
Position TAKEN:
1. Yes. If there has been a substitution with a similar business.
2. Question of fact. May not be similar.
Reasons FOR POSITION TAKEN:
1. Reading of draft legislation and Technical Notes.
2. Need all the facts before a decision can be made.
952151
XXXXXXXXXX Allan Nelson
(613) 957-9768
September 14, 1995
Dear XXXXXXXXXX:
Re: Fiscal Year-ends and Ten Year Reserves
Request for Technical Opinion
This is in reply to your August 11, 1995 letter to the Ottawa Taxation Centre, requesting answers to the following questions concerning the application of draft section 33 of the Income Tax Act (the "Draft Legislation", as issued by the Department of Finance in July, 1995):
(1) Would the ten year reserve, as contemplated in draft subsection 33(4) of the Act, be available to be carried over to an existing proprietorship by an individual partner who leaves a partnership in 1995?
(2) Would the business carried on by the proprietorship be viewed as a similar business to that of the partnership?
Your questions relate to a specific factual situation. As noted in Information Circular 70-6R2, we do not provide opinions with respect to proposed factual transactions other than in reply to an advance income tax ruling request. If, as suggested in your letter, the transaction has already been completed, we recommend that you discuss the issue with your local tax services office. However, we will offer the following general comments, which we hope will be of assistance to you.
Generally speaking, if the Draft Legislation becomes law as proposed, and if an ex-partner has "December 31, 1995 income" from a partnership for a "qualifying fiscal period", as those terms are defined in subsection 33(1) of the Act, the ex-partner would be entitled to deduct a reserve in respect of the "December 31, 1995 income" from the partnership in computing the ex-partner's income for 1995, pursuant to and in accordance with subsection 33(4) of the Act. Any such reserve claimed in 1995, would have to be included in computing the ex-partner's income for the 1996 taxation year, pursuant to subsection 33(5) of the Act. Assuming the ex-partner is not carrying on the business of the partnership in 1996 and subsequent years, and subject to the exception explained below, no further reserves would be available to the ex-partner in respect of the December 31, 1995 income from the partnership. However, if after leaving the partnership, the ex-partner substitutes another similar business for the business of the partnership, subsection 33(3) of the Act provides an exception which would allow the ex-partner to continue to be eligible to claim a reserve in respect of the "December 31, 1995 income" from the partnership. There is nothing to prohibit the substitution of a business operated as a proprietorship for a business previously operated as a partnership, so long as they are similar businesses.
It is a question of fact, whether businesses are similar. We have some concerns that a doctor practising research, teaching and examining patients, may not be carrying on a similar business as a doctor whose sole business is examining patients. Without knowing all of the facts in your client's particular case, such as the amount of time and resources expended in the various activities, we are unable to comment further on this issue.
Yours truly,
Chief
Merchandising, Manufacturing
and Partnerships Section
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
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