Joint ventures – Elimination of fiscal period

On November 29, 2011, the CRA announced that joint ventures would no longer have a fiscal period. Therefore, participant taxpayers who had entered into joint venture arrangements under CRA's former administrative policy were no longer eligible to compute income as if the joint venture had a separate fiscal period.

For tax years ending after March 22, 2011, income from a joint venture is required to be calculated for each participant taxpayer based on the fiscal period of the particular participant taxpayer.

Impact on joint venture participants

This may have resulted in the inclusion of significant incremental income of a participant taxpayer of a joint venture for the first tax year of the participant taxpayer ending after March 22, 2011. Accordingly, for the first tax year that ended after March 22, 2011, the CRA allowed, on an administrative basis, transitional relief similar to the relief under amended section 34.2 of the Income Tax Act for qualifying transitional income to members of partnerships.

The income that would generally qualify for this transitional relief was based on the actual additional income for the stub period to the extent the amount would not have otherwise been included in income for the first tax year of the participant taxpayer that ended after March 22, 2011.

This transitional relief generally resulted in no additional income being included in the first tax year of the participant taxpayer in the joint venture. Instead, the participant taxpayer brings the additional income into its income over the five tax years that follow that first tax year in a manner similar to the reserve mechanism as provided for under amended section 34.2. In general, and subject to the conditions as similarly stipulated under amended section 34.2, the reserve mechanisms effectively allow the participant taxpayer to include 15% of additional income in 2012, 20% in 2013, 2014 and 2015, and 25% in 2016.

Which participants were impacted?

For tax years ending after March 22, 2011, all participant taxpayers of joint ventures were expected to include in income all amounts that would have been deferred as a result of fiscal periods that differed from the tax years of the participant taxpayer, including those amounts deferred as a result of tiered structures.

Transitional relief

To benefit from the joint venture transitional relief policy for the first tax year ending after March 22, 2011, a participant taxpayer was required to file an election to their tax centre on or before the filing-due date for that tax year. No elections were accepted after September 22, 2012.

Impact of not reporting the accrued income

Failure to report all the accrued income in a participant taxpayer's first tax year that ended after March 22, 2011, in accordance with this administrative policy resulted in the participant taxpayer's ineligibility for transitional relief.

Reporting requirements for partnerships

In circumstances in which a partnership was a participant in a joint venture, for the first fiscal period of the partnership ending after March 22, 2011, the income from the joint venture (including any deferred income) was required to be included in the computation of the partnership's income for that fiscal period. This income had to be computed according to the provisions of the Income Tax Act (for example, subsection 96(1) and amended section 249.1).

What if you did not rely on the former administrative policy?

This administrative policy, which allowed for transitional relief, was not available to participant taxpayers of joint ventures who had not previously relied on the former administrative policy to calculate income based on the fiscal period established by the joint venture.

Related topics

• Partnerships – Deferral of corporation tax

Date modified:

2017-02-21