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: Should undistributed earnings of a partnership, earned in the period between the fiscal year end of the partnership ended in the corporate partner’s taxation year and the fiscal year end of the corporate partner be included in the capital of the corporate partner for the purposes of Part I.3?
Position: Generally, undistributed earnings for this stub period would not be included in the computation of the corporate partner’s capital for the purposes of Part I.3.
Reasons: Generally the capital of a corporate partner is determined with reference to the fiscal year end of the partnership.
May 4, 2001
CALGARY TSO HEADQUARTERS
Caroline Baffa Alison Campbell
Business Audit Income Tax Rulings
Directorate
(613) 957-8953
2001-007428
Part I.3 Tax Relating to Partnership Interests
This is in reply to your memorandum of March 12, 2001, which requested our comments on the inclusion of partnership earnings in the taxable capital of a corporate partner.
In the Agency’s response to a question posed at the 1998 TEI Conference (our document number 9829820), it was stated that a corporate partner’s share of earnings from a partnership’s fiscal period ended in the corporate partner’s taxation year would have to be included in the corporate partner’s taxable capital, whether or not such earnings have been distributed to the corporate partner. This is still our view.
In the final paragraph of the December 1998 document, we commented on the situation where a partnership distributes some or all of its stub period earnings to a corporate partner prior to the end of the corporate partner’s fiscal period. Our general view in this situation remains that where a corporate partner receives a distribution from a partnership and the following are true:
(a) the distribution is in respect of amounts earned by the partnership during the stub period (i.e. not a distribution of amounts earned in prior fiscal period(s) of the partnership), and
(b) the amount of the distribution has been recorded in the corporate partner’s accounts in accordance with GAAP by a debit to cash and a credit to retained earnings,
then, the amount of the distribution should be included in the capital of the corporate partner under paragraph 181.2(3)(a). This same result would occur if the distribution were characterized as an advance.
With respect to undistributed stub period earnings of a partnership, it is our general view that such amounts would not be included in the corporate partner’s taxable capital.
We trust our comments will be of assistance to you.
F. Lee Workman
Manager
Financial Institutions Section
Income Tax Rulings Directorate
Policy and Legislation Brach
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