Principal Issues: Is an election under subsection 13(29) available when a long-term project is carried on by a partnership?
Position: Yes.
Reasons: The law.
XXXXXXXXXX 2011-041605 Michael Cooke, C.A.
September 12, 2011
Dear XXXXXXXXXX :
Re: Subsection 13(29) Election
We are writing in response to your letter dated August 8, 2011, wherein you asked for our views on the election under subsection 13(29) of the Income Tax Act (the "Act") where a limited partnership acquires a depreciable property for use in a long-term project.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to offer the following general comments, which may be of assistance.
Generally speaking, subsection 13(29) of the Act provides an election in respect of certain depreciable property, including buildings other than rental buildings, acquired for use in a long-term project. Where such an election is made by the taxpayer, the available-for-use rules will be applied to all project-related expenditures made in the year in which project property was first acquired and in the following year. However, in the third and subsequent years, application of the available-for-use rules to expenditures made as part of the long-term project will be limited so that only those expenditures in any such year in excess of certain threshold amounts will be subject to the available-for-use rules. The prescribed form for making an election under subsection 13(29) of the Act is the T1031.
As you are aware, for the purposes of the Act a partnership is not considered to be a person or a taxpayer. However, the rules in section 96 of the Act provide that each source of income (on a net basis) must be computed at the partnership level on the assumption that the partnership is a separate person for such computation.
It is our view that an election under subsection 13(29) of the Act would be available to a partnership. For the purpose of determining the "particular year" referred to in subsection 13(29) of the Act, one would generally look to the fiscal period of the partnership. Where the partnership is a limited partnership, the election under subsection 13(29) of the Act would be expected to be made by the general partner. Accordingly, in such circumstances, the general partner would file the T1031 on behalf of the partnership with the general partner's return of income under Part 1 for its taxation year that includes the end of the fiscal period of the partnership that would be the "particular year" for the purposes of subsection 13(29) of the Act. The T1031 indicates that this form should be signed by the individual, partner or authorized officer if it is a corporation (i.e., the person making the election).
We trust that these comments will be of assistance.
Yours truly,
Sandy Parnanzone
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch