Translation disclaimer
This translation was prepared by Tax Interpretations Inc. The CRA did not issue this document in the language in which it now appears, and is not responsible for any errors in its translation that might impact a reader’s understanding of it or the position(s) taken therein. See also the general Disclaimer below.
Principal Issues: 1- Whether a partnership can modify its fiscal period where it has previously elected for an alternative fiscal period pursuant to 249.1(4). 2- Whether a partnership can modify its fiscal period where it has not previously elected for an alternative fiscal period pursuant to 249.1(4). 3- What is the time limit to make an election pursuant to 249.1(4) and what is the method to file such an election?
Position: 1- Yes, subject to the concurrence of the Minister. 2- No. 3- The election has to be filed by a partner with authority to act for the partnership on or before its filing-due date for its taxation year that includes the first day of the first fiscal period of the partnership. The election must be filed with the partner’s tax return for that taxation year using the prescribed form T1139.
Reasons: Provisions of the Act.
XXXXXXXXXX 2014-053434
Sophie Larochelle
February 20, 2017
XXXXXXXXXX :
Year-end change in the fiscal period of a partnership
This is in response to your letter dated May 23, 2014 in which you asked us for our opinion on two scenarios involving a year-end change in the fiscal period of a partnership. We apologize for the delay in responding to your request.
Unless otherwise indicated, all statutory references herein are references to the provisions of the Income Tax Act (the "Act").
Hypothetical scenarios submitted
Scenario 1
• SENC1 partnership was formed in April 2009.
• SENC1 earns business income.
• The two partners of SENC1 are individuals.
• The partners made an election under subsection 249.1(4) and, as a result, SENC1 has had a fiscal year-end of April 30 since its formation.
• SENC1 is part of a group of corporations with a fiscal year-end of September 30.
• SENC1 would like to change its fiscal year end to September 30 to coincide with its new year-end for accounting purposes (which corresponds to the fiscal year of the other corporations in the group).
Scenario 2
• SENC2 partnership was formed in October 2014.
• SENC2 earns business income.
• The two partners of SENC2 are individuals.
• The SENC2 partners want to make an election under 249.1(4) to have a fiscal year-end as of September 30th. SENC2 is part of a group of corporations with a fiscal year end of September 30.
SENC2 would like to have a fiscal year-end as of September 30th so that it coincides with its new year-end for accounting purposes (which is the year end for the other corporations in the group).
Your questions
With respect to the first scenario, you asked us if it is possible for SENC1 to change its fiscal year-end to September 30th. In addition, you asked whether the answer would differ if no election had been made under subsection 249.1(4).
As for the second scenario, you asked us what the filing deadline for the election under subsection 249.1(4) would be in order for SENC2 to have a fiscal year-end of September 30, 2015.
You also asked us how the partners of a partnership should make an election under subsection 249.1(4).
Your comments
This technical interpretation provides general comments on the provisions of the Act. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Scenario 1
Paragraph 249.1(1)(b) provides that no "fiscal period" of a partnership of which one of the members is, inter alia, an individual, may end after the end of the calendar year in which the period began unless, in the case of a business, the business is not carried on in Canada. Subsection 249.1(4) provides an exception to the rule set out in paragraph 249.1(1)(b) where an election is made within the prescribed time and in the prescribed form. Thus, when such an election is made, the fiscal period of the partnership may end at a time other than December 31, but not more than 12 months after the period began (pursuant to paragraph 249.1(1)(d)), as long as the election is not revoked under subsection 249.1(6). Subsection 249.1(7) states that no change in the time when a fiscal period ends may be made for the purposes of this Act without the concurrence of the Minister. This provision, in contrast to subsection 249.1(4), does not constitute an exception to paragraph 249.1(1)(b). Based on the facts submitted, since an election under subsection 249.1(4) was made by SENC1, and SENC1 is not subject to the provisions of paragraph 249.1(1)(b), we are of the view that an application to the Minister to change the time at which its fiscal year-end ends is still available under subsection 249.1(7). Any such change is, however, subject to the concurrence of the Minister and will generally only be accepted where a serious commercial reason exists.
Since the election under subsection 249.1(4) is not an election that can be delayed pursuant to subsection 220(3.2), our response would be different in the scenario where SENC1 did not make an election under subsection 249.1(4) within the prescribed time period. Indeed, it would no longer be possible to avoid the application of paragraph 249.1(1)(b) so that SENC1 could not change the end of its fiscal year.
Scenario 2
For the second scenario, an election under subsection 249.1(4) must be filed in the prescribed form on or before the partner's filing-due date for the taxation year that includes the first day of the first fiscal period of the partnership, that is, on June 15 of the year following the year in which the business began to be carried on, all pursuant to paragraph 249.1(4)(a), the definition "filing-due date" in subsection 248(1) and subparagraph 150(1)(d)(ii).
T1139 and subsection 96(3)
The election under subsection 249.1(4) should be filed with the Minister with the partner's return of income under Part I of the Act, using Form T1139, Reconciliation of Business Income for Tax Purposes. Refer to Guide RC4015 for more information. As required by paragraph 96(3)(a), to be valid, such election must be made by a partner having the authority to act for the partnership and must be made in the name of the partner and each other person who was a member of the partnership during the fiscal period,
We hope that these comments will be of assistance.
Dave Beaulne, CPA, CA
Section Manager
For Division Director
International Division
Income Tax Rulings Directorate
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