What's new for partnerships

New code for Box 002 of Form T5013, Statement of Partnership Income

As of January 1, 2017, a new code is implemented for Box 002 of Form T5013, Statement of Partnership Income, and for line 106 of Form T5013 SCH 50, Partner’s Ownership and Account Activity – Schedule 50. The new code “6” is entered in Box 002 for a retired member paid under subsection 96(1.1). For more information, see T4068, Guide for the Partnership Information Return (T5012 Forms) "Partner code for retired partner” on page 57.

Multiplication of the small business deduction

The small business deduction includes rules that are intended to preclude the multiplication of access to the deduction. Budget 2016 proposes to includes changes to address concerns about partnership and corporate structures that multiply access to the small business deduction.

This proposed measure will apply to taxation years that begin on or after March 22, 2016. However, an actual member of a partnership will be entitled to notionally assign all or a portion of the member’s specified partnership income (SPI) limit in respect of their taxation year that begins before and ends on or after March 22, 2016. For more information, see T4068, Guide for the Partnership Information Return (T5012 Forms) “Multiplication of the small business deduction” on page 13.

Transfers of life insurance policies

Budget 2016 proposes to amend the Act to ensure that amounts are not inappropriately received tax free by a policyholder as a result of a disposition of an interest in a life insurance policy. In general, this proposed measure will apply to dispositions that occur on or after March 22, 2016. This tax measure may have an impact on the calculation of the adjusted cost base of an interest in a partnership.

Debt parking to avoid foreign exchange gains

Budget 2016 proposes rules so that any accrued foreign exchange gains on a foreign currency debt will be realized when the debt becomes a parked obligation. Exceptions to these rules provide that a foreign currency debt does not become a parked obligation in the context of certain bona fide commercial transactions. Also, related rules provide relief to financially distressed debtors.

This proposed measure will apply to a foreign currency debt that meets the conditions to become a parked obligation on or after March 22, 2016. This measure will not apply if these conditions are met before 2017 and are a result of a written agreement entered into before March 22, 2016.

Extension of the back-to-back rules

The Act contains “back-to-back loan” rules that prevent taxpayers from interposing a third party between a Canadian borrower and a foreign lender in an attempt to avoid the application of rules that would otherwise apply if a loan were made directly between the two taxpayers. In particular, the back-to-back loan rules in Part XIII of the Act ensure that the amount of withholding tax in respect of a cross-border interest payment cannot be reduced through the use of a back-to-back arrangement. Budget 2016 proposes to build on the existing back-to-back loan rules.

Back-to-back rules for rents, royalties and similar payments

Budget 2016 proposes to extend the basic concepts of the back-to-back loan rules under Part XIII to royalty payments. Similar to the existing back-to-back loan rules in Part XIII, the proposed rules for royalties will consider two arrangements to form a back-to-back arrangement if they are sufficiently connected. This proposed measure will apply to royalty payments made after 2016.

Budget 2016 addresses proposes to back-to-back arrangements by extending the basic concepts of the back-to-back loan rules under Part XIII to royalty payments. Similar to the existing back-to-back loan rules in Part XIII, the proposed rules for royalties will consider two arrangements to form a back-to-back arrangement if they are sufficiently connected. This proposed measure will apply to royalty payments made after 2016.

Extension of the back-to-back shareholder loan rules

To address the use of back-to-back arrangements to circumvent the shareholder loan rules, Budget 2016 proposes to amend the shareholder loan rules to include rules that are similar to the existing back-to-back loan rules, except that the proposed rules will apply to debts owing to Canadian-resident corporations rather than debts owing by Canadian-resident taxpayers. This proposed measure will apply to back-to-back shareholder loan arrangements as of March 22, 2016. For back-to-back shareholder loan arrangements that are in place on March 22, 2016, the deemed indebtedness will be deemed to have become owing on March 22, 2016.

Eligible capital property

As of January 1, 2017, Budget 2016 repeals the eligible capital property regime and replaces it with a new capital cost allowance class available to businesses. The Budget also provides transitional rules. Under the old regime, eligible capital expenditures are added to the cumulative eligible capital pool at a 75% inclusion rate, and the rate of depreciation of those expenditures is 7% on a declining-balance basis. Under the new regime, newly-acquired eligible properties will be included in a new CCA class (class 14.1) at a 100% inclusion rate with a 5% capital cost allowance rate on a declining-balance basis.

For each taxation year that ends prior to 2027, additional deductions for CCA will be allowed for property acquired before January 1, 2017 and included in class 14.1. Also, a separate business deduction will be provided for incorporation expenses incurred after 2016, such that the first $3,000 of the expenses will be treated as a current expense rather than being added to the new class 14.1.

Family farm partnerships

Family farm partnerships composed of only individual partners will be exempt from filing the T5013 information return for the 2016 fiscal period. For more information, go to Exemption for family farm partnerships from filing T5013 Partnership Information Return.

Date modified:

2017-01-31