Section 249.1

Subsection 249.1(1)

See Also

Les Développements Iberville Ltée v. Agence du Revenu du Québec, 2018 QCCA 1886 (Quebec Court of Appeal)

no policy of permitting differing Quebec and federal year ends

Three affiliated Quebec corporations sought to avoid most of the Quebec tax on the sale of Quebec real estate at a gain of around $800M (including some recapture) by using a “Quebec year-end shuffle,” which entailed reorganizing to have the gains realized in subsidiary numbered companies that had different year ends for Quebec, and Ontario and federal, purposes. In connection with a finding that these transactions gave rise to an abuse under the Quebec general anti-avoidance rule, Schrager JA noted that establishing different year ends for provincial and federal purposes was contrary to the purpose of the Quebec definition of “fiscal period” in Taxation Act, s. 7 which, in copying the federal definition, did not show any intention to allow different year ends for federal and Quebec purposes, stating (at para. 52):

The definition of fiscal period essentially copied from the federal legislation some years ago cannot in context be characterized as tax policy and certainly not a policy to treat capital gains differently from other provinces or from the federal government. The [definition] … by no means speaks to specifically allowing different financial year-ends for Quebec purposes.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) abuse to use rollover provisions to avoid rather than defer tax 633
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) abuse of Quebec equivalents of ss. 85(1) and 97(2) to avoid (rather than defer) tax 390
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Real Estate property bifurcated between capital and income portion on acquisition 94
Tax Topics - Income Tax Act - Section 18 - Subsection 18(1) - Paragraph 18(1)(b) - Capital Expenditure v. Expense - Improvements v. Repairs or Running Expense improvements to leased retail premises were not demonstrated to be made only at tenants’ requests 91
Tax Topics - Income Tax Regulations - Regulation 402 - Subsection 402(6) purpose of inter-provincial allocation rules is for 109% of income to be allocated and taxed 510

Administrative Policy

15 August 2012 External T.I. 2012-0438481E5 - Change of Fiscal Period Year-End

use of Feb. 29 in leap year

In 2012-0438481E5, a corporation with a February 28 year end was not entiled to file on the basis of a February 29 year end in a leap year. Is it CRA's practice to require re-filings where a historical February 28 year-end is filed with a February 29 year end in leap year? CRA responded:

We use the history of the taxpayer's filing pattern to determine the taxpayer's intent with respect to their year-end:

  • If the taxpayer has always filed with a February 28 year-end, even in leap years, and then decides (in a leap year) to file with a February 29 year-end, the IT Rulings Document referenced above would apply as their filing history would indicate that they had originally picked "February 28" as their year-end, and are now trying to change it.
  • If historically the taxpayer has always filed with a February 28 year-end in non-leap years, and with a February 29 year end on leap years, we acknowledge that the taxpayer intends to have picked the "last day of February", and not the specific date "February 28" as their year-end.

11 September 1996 T.I. 960940 (C.T.O "Fiscal Period - Bare Trust")

Where a corporation holding real estate acted as bare trustee for its beneficial owner, which was another corporation acting for a group of co-owners of the real estate, s. 249.1(1)(b) would apply if some of the co-tenants were individuals or other entities described in s. 249.1(1)(b).

See also

Paragraph 249.1(1)(c)

Administrative Policy

18 August 2014 External T.I. 2014-0528001E5 - Fiscal period of a partnership

corporate sub of upper-tier partnership is member of lower-tier partnership

Partnership A, all of whose members are individuals who have elected under s. 249.1(4) since 1995 to have an off-calendar fiscal period end of June 30 for Partnership A, incorporates Aco which forms Partnership B with professional corporations that deal at arm's length with Partnership A's members. Would s. 249.1(1)(c) apply to force Partnership A to have a fiscal period end of December 31st?

CRA responded:

Partnership A's indirect investment in Partnership B through its wholly-owned corporation (Aco) would not, in and of itself, cause Partnership A to be within the ambit of paragraph 249.1(1)(c) since that provision is concerned with tiered partnership structures and contemplates a membership interest in a partnership that is held directly, or indirectly through one or more partnerships, by a partnership.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(4) corporate sub of upper-tier partnership is member of lower-tier partnership 97

28 August 2012 External T.I. 2012-0454811E5 - Multi-tiered joint ventures

A corporation with a year end of March 31, 2011, is a participant in a joint venture ("JV1") with a fiscal period end of April 30, 2010. JV1, in turn, is a participant in JV2 with a fiscal period end of May 31, 2009. After referring to CRA's administrative poicy allowing the deferral of the additional income, arising as a result of the withdrawal of CRA's position allowing joint ventures to compute income as if they had a separate fiscal period, for a period of up to five years simialr to the relief provided to partnerships under s. 34.2, CRA stated:

the additional income for the period from June 1, 2009 to March 31, 2011 (22 months) from JV1 and for the period from May 1, 2010 to March 31, 2011 (11 months) from JV2 could qualify for transitional relief.

13 March 2012 External T.I. 2012-0432111E5 - Revised joint venture policy

after adverting to the previous withdrawal of its position that joint venture income could be computed as if the joint venture had a separate fiscal period (see 2011-042958), and the resulting requirement that income for the "stub period" be included in income for the first taxation year commencing after March 2, 2011, and further noting that at the time a joint venture participant files its return for that year actual financial data for the stub period may not be available, CRA stated that it

will generally accept estimated amounts to be corrected to actual amounts for purposes of the stub period income reporting and amend the transitional relief accordingly as long as the JV participant requests that the CRA amend the relevant return on a timely basis.

Subsection 249.1(2) - Not a member of a partnership

Administrative Policy

28 February 2012 External T.I. 2011-0424191E5 F - Fiscal period of a partnership

"share of ... income" references contractual entitlement irrespective of actual partnership income quantum

In the situation where a corporate general partner of the partnership has no entitlement in the particular year to profits of the partnership because of a preferential share of the individual limited partner with the threshold above which the general partner is entitled to participate not having been exceeded, the corporate partner nonetheless would be considered to have a share of the income of the partnership for purposes of s. 249.1(2), so that the election in s. 249.1(4) would not be available. Before so concluding, CRA stated:

[S]ubsection 249.1(2) has been added to allow a person - who leaves a partnership during a fiscal period in a situation where the partnership no longer allows the person, by reason of that departure, to receive a share of the income or loss of the partnership for what would have been the fiscal period of the partnership had it ended at the end of calendar year in which it began - to not be considered as partner.

Words and Phrases
share of income

Subsection 249.1(4) - Alternative method

Administrative Policy

20 February 2017 External T.I. 2014-0534341E5 F - Partnership change of fiscal period

a partnership of individuals can change with CRA’s permission to a different non-calendar year end

An LP between two individuals has elected under s. 249.1(4) to have a non-calendar year end, say April 30, and now wishes to change to a September 30 year end for tax and accounting purposes to conform with the September year end of a related group of corporations. CRA stated:

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)… 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 business reason exists.

…[W]here SENC1 [instead] did not make an election under subsection 249.1(4) within the prescribed time period…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.

After noting the time limitation for making the s. 249.1(4) election, CRA described the procedure for making the election:

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…. 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,

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(7) requirement for serious commercial reason for change in non-calendar year end 78

18 August 2014 External T.I. 2014-0528001E5 - Fiscal period of a partnership

corporate sub of upper-tier partnership is member of lower-tier partnership

Partnership A, all of whose members are individuals who have elected under s. 249.1(4) since 1995 to have an off-calendar fiscal period end of June 30 for Partnership A, incorporates Aco which forms Partnership B with professional corporations that deal at arm's length with Partnership A's members. Could Partnership A retain its off-calendar fiscal period end under s. 249.1(4)?

CRA responded:

[T]he requirement in subparagraph 249.1(4)(b)(ii) is that "the partnership is not a member of another partnership". Accordingly…Aco becoming a member of Partnership B would not preclude Partnership A from retaining its off-calendar fiscal period end under subsection 249.1(4).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(1) - Paragraph 249.1(1)(c) corporate sub of upper-tier partnership is member of lower-tier partnership 123

5 June 2003 External T.I. 2002-017848 -

Where a proprietorship has not filed an s. 249.1(4) election, the fiscal period of the business will always be from January 1 to December 31 of any calendar year. Where an individual proposes to incorporate a proprietorship, the individual could request (pursuant to s. 249.1(7)) a change in the fiscal period of the business to end immediately before the time of the transfer of the business (so that the proprietorship can claim capital cost allowance for the (shortened) fiscal period that would end immediately before the transfer.

11 September 1996 T.I. 961057 (C.T.O "Fiscal Period - Co-Ownership")

Where the income from a rental property held in co-ownership by a corporation, an individual and a trust has been reported based on a June 30 fiscal period, the corporation will not be required to recognize any additional amount for the six-month period ending on December 31, 1995 notwithstanding the application of s. 249.1 to the individual and trust.

Subsection 249.1(7) - Change of fiscal period

Administrative Policy

2017 Ruling 2016-0674681R3 - Sequential Split-Up Butterfly

CRA accommodates year end change so that dividend refund of full RDTOH balance is generated in Year 1

Following a split up butterfly and winding-up of a corporation (DC1) for which DC2 had been a holding company, DC2 is held by three corporations, TC1, TC2 and TC3. DC2 then effects s. 84(1) deemed dividends on a pro rata basis to the three TCs, which is ruled to result in a full refund of its RDTOH. There then is a single-wing split-up butterfly for the distribution of a pro rata portion of DC2’s three types of property to TC1 (including the right to the dividend refund, viewed as near-cash asset).

This single-wing butterfly concludes with the payment of a s. 84(3) deemed dividend to TC1 only (paras. 78-79). The above ruling is predicated on the taxation year of DC2 terminating before the single-wing butterfly, so that all of the dividend refund is generated before the second deemed dividend going only to TC1. The ruling letter states (para. 69.1):

Upon receipt of this Rulings letter in respect of the Proposed Transactions, if not earlier, DC2 will submit a request to the relevant Tax Services Office of the CRA to have a change of year-end. All proposed steps described in Paragraph 70 onwards [respecting the single-wing butterfly] will occur in the next taxation year of DC2.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Distribution sequential split-up butterfly with 1% tolerance, triggering of capital gains to generate CDA and RDTOH, and year end change to accommodate RDTOH division 656
Tax Topics - Income Tax Act - Section 129 - Subsection 129(1) capital gain deliberately triggered to generate CDA and RDTOH addition and year end change granted to isolate dividend refund 499
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3.1) - Paragraph 55(3.1)(a) sale of securities for cash proceeds that are reinvested, and tendering shares for shares of offeror 56

20 February 2017 External T.I. 2014-0534341E5 F - Partnership change of fiscal period

requirement for serious commercial reason for change in non-calendar year end

Where a partnership between individuals has elected under s. 249.1(4) to have a non-calendar year end, say April 30, and now wishes to change to a September 30 year end for tax and accounting purposes to conform with the September year end of a related group of corporations (i.e., changing to a new non-calendar year end), such change can be made with CRA’s permission - although such application “will generally only be accepted where a serious business reason exists.”

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 249.1 - Subsection 249.1(4) a partnership of individuals can change with CRA’s permission to a different non-calendar year end 244

2015 Ruling 2015-0605901R3 F - Présomption de gain en capital

taxation year end changed to immediately before building spin-off

The proposed transactions contemplate (in para. 24) respecting a spin-off of real estate by Opco to newly-incorporated Realtyco that "Opco will make an advance request to the CRA to change its fiscal period end in order to close off the latter before the transfer of the depreciable assets so that Opco will claim capital cost allowance for the current fiscal period up to the amount permitted by the Act and Regulations." (Per para. 17, "the fiscal period of Realtyo will be fixed at a date which will permit the avoidance of Part IV tax circularity.")

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3.01) - Paragraph 55(3.01)(g) separation of real estate assets beneath new holdco formed by unrelated shareholders 512
Tax Topics - Income Tax Act - Section 55 - Subsection 55(3) - Paragraph 55(3)(a) - Subparagraph 55(3)(a)(ii) spin-off of real estate beneath new common holdoc of unrelated shareholders 105
Tax Topics - Income Tax Act - Section 186 - Subsection 186(1) - Paragraph 186(1)(b) year end selection to avoid Pt. IV circularity 91

9 December 2014 External T.I. 2014-0529311E5 - Change the fiscal period end of a partnership

partnership year end change must be for business purposes/avoid multi-tier misalignment

A top-tier partnership, where the lower-tier partnerships have calendar fiscal periods as required by s. 249.1(1)(c), will have a loss from a given source up to the transfer date for the sale by a partner of his interest but not necessarily for its calendar fiscal period. Would CRA grant a hypothetical request to change the partnership's fiscal period end from December 31 to the day before the transfer date to ensure that the former partner can be allocated a loss based on the shortened fiscal period? CRA stated:

[R]equests for changes in fiscal periods … [must] be demonstrated to be prompted solely by sound business reasons other than obtaining tax benefits. Additionally, neither the personal convenience of the taxpayer nor the saving or deferment of income taxes is accepted as a sound business reason. …[T]he request to have the fiscal period of the partnership end before the transfer date is to ensure that the former partner can be allocated a loss based on the shortened fiscal period. Accordingly … it would seem unlikely that the Minister would concur with such a request. Further, granting a request to change the fiscal period end of a partnership in a multi-tier partnership structure that results in the fiscal period ends of the partnerships becoming misaligned would be contrary to the underlying rationale of paragraph 249.1(1)(c).

Subsection 249.1(8) - Single-tier fiscal period alignment

Administrative Policy

8 March 2012 External T.I. 2011-0429481E5 - Single-tier alignment conditions

s. 249.1(8) requires that the particular day that may be elected to end the fiscal period of a partnership must be after March 22, 2011 and before the day on which that fiscal period would otherwise end. Accordingly, where the partnership fiscal period otherwise would end on August 31, 2011, the members of the partnership may not elect to make a single-tier period alignment to end the partnership fiscal period on October 31, 2011 (the year end of such members).

Subsection 249.1(10) - Conditions to align a partnership fiscal period

Administrative Policy

24 April 2012 External T.I. 2012-0444451E5 - Multi-tier alignment election

Where three corporations with calendar year-ends were members of Partnership X with a calendar fiscal period end, and one of the corporations and Partnership X were the members of a bottom-tier partnership (Partnership Y) with a fiscal period end of January 31, it would be possible for the members of Partnership X to make a multi-tier alignment election under s. 249.1(9) so as to cause the first aligned fiscal period of Partnership X and Y to end on January 31, 2012 (with Partnership X thereby having a one month stub fiscal period), provided the other conditions of s. 249.1(10) were satisfied.