7 March 1991 Income Tax Severed Letter - Commencement of Business - Proration of CCA

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.

Subject: XXX Commencement of Business Proration of CCA - Regulation 1100(3)

This is in reply to your memorandum of January 9, 1991 concerning the above-captioned subject. Following our various telephone conversations (Fontaine/Carl) our understanding of the situation is as follows:

• 1. XXX
• 2. XXX
• 3. XXX
• 4. XXX
• 5. XXX
• 6. XXX

Our comments are as follows:

(1) Interpretation Bulletin, IT-364 comments on a number of situations outlining the time at which a business would be considered to begin. Paragraph 2 of the Bulletin states:
• ”. . . a business commences whenever some significant activity is undertaken that is a regular part of the income earning process in that type of business or is an essential preliminary to normal operations. In . . . finding that a business has commenced, it is necessary that there be a fairly specific concept of the type of activity to be carried on and a sufficient organizational structure assembled to undertake at least the essential preliminaries”.

(2) In the M.P. Drilling case [[1976] C.T.C. 58] 1976 DTC 6028, it was held that:

”. . . the business structure per se came into existence . . . when the Respondent commenced its business operations by continuing the market negotiations, supply negotiations and technical studies through its consultants. . . .”

(3) Based on the general definition of the term “partnership”, i.e., “the relation that subsists between persons carrying on a business in common with a view to profit”. XXX Lindley on Partnership, a well known legal reference on partnerships, states:

“Agreements to carry on the business at a future time do not render the parties to them partners (before they actually do carry on business. It is the carrying on of a business, not an agreement to carry it on, which is the test of partnership (Emphasis added). Persons who are contemplating a future partnership, or who have only entered into an agreement that they will at some future time become partners, cannot be considered as partners before the arrival of the time agreed upon. . . .”

XXX

(5) Paragraph 96(1)(b) of theIncome Tax Act(the “Act”) stipulates that a partnership's taxation year will be its fiscal period. Subsection 248(1) of the Act defines “fiscal period” as the period for which the accounts of the business of the taxpayer have been ordinarily made up and accepted for purposes of assessment under the Act. If the Partnership was considered to have commenced at the time any of the activities described in 6 above commenced, one would expect that any costs related thereto would be borne by the Partnership.

XXX

We hope our comments will be of assistance to you.