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
Provide an opinion regarding the time at which the corporate member of a partnership which realizes a capital gain would be able to include its share of the capital gain in computing its capital dividend account where the fiscal period of the partnership does not coincide with the taxation year of the corporate member.
Position:
The share of the capital gain allocated to the corporate member would be included in computing the corporate member's capital dividend account in its taxation year which includes the end of the partnership's fiscal period in which the capital gain was realized.
Reasons:
Paragraph 96(1)(f) of the Act which determines that a partnership's income on a source by source basis for a fiscal period will flow to its partners in accordance with their profit-sharing ratios in the taxation year of the partner which includes the end of the particular fiscal period.
Wording of the definition of the term "capital dividend account" in subsection 89(1).
XXXXXXXXXX F.B. Fontaine
2000-004941
Attention: XXXXXXXXXX
November 22, 2000
Dear Sirs:
Re: Capital Dividend Account
This is in reply to your letter dated September 28, 2000 concerning the above-captioned subject.
You described a situation in which a partnership realized a capital gain on the disposition of property to a corporate member of the partnership. The partnership's fiscal period does not coincide with the taxation year end of the corporation. You are concerned as to the time at which such capital gain will be reflected in the capital dividend account of the corporate partner.
The situation that you have described appears to be an actual fact situation. Paragraph 22 of Information Circular 70-6R3 (the Circular) outlines the procedure to be followed where a situation involves a completed or contemplated transaction. Accordingly, while we are unable to provide confirmation of the income tax effects of the particular situation, we are prepared to offer the following general comments:
Pursuant to paragraph 96(1)(f) of the Income Tax Act (the "Act"), a partnership's income or loss from a particular source or from sources in a particular place is a partner's share thereof, for the taxation year of the partner in which the partnership's fiscal period ends.
Based on paragraph 96(1)(f) of the Act, a partner's share of a capital gain realized by a partnership, would be attributable to the partner for tax purposes, at the end of the partnership's fiscal period in which the capital gain was realized. Accordingly, it is our opinion that a corporate member of such partnership would include its share of such capital gain in its taxation year that ends immediately after the end of the partnership's fiscal period, for the purpose of computing the corporate member's "capital dividend account" ("CDA") in accordance with the definition of the term under subsection 89(1) of the Act.
Where, for example, a particular corporation is a member of a partnership which realized a capital gain in its fiscal period ending April 30, 2001 and the corporation's taxation year ends on December 31, the corporate partner's share of the capital gain, (including the untaxed portion thereof), would be added to that partner's CDA at April 30, 2001, i.e. in the corporate partner's taxation year ending December 31, 2001.
We trust the comments above which represent an expression of opinion will be of assistance. As stated in paragraph 22 of Information Circular 70-6R3, written opinions are not advance income tax rulings and, accordingly, are not binding on the Canada Customs and Revenue Agency.
Yours truly,
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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