The two 50% partners of a partnership (both individuals), transfer their respective interests on August 1 of Year 1 on a tax rollover basis to a corporation. After the rollover, the partnership is owned 99% by the corporation and 1% by an inter vivos family trust. The partnership, which earns income from property, has had a calendar fiscal period end for some time. Would CRA allow the partnership to have a July 31 fiscal period end in Year 1 and a June 30 fiscal period end beginning with the next fiscal period?
After noting that since the partnership had an individual (the trust as a member), s. 249.1(1)(b)(ii) provided that the partnership fiscal period could not extend beyond the end of the calendar year in which it began, the Directorate stated:
[I]t is possible that the Minister would approve a year-end change for Year 1 as long as the request is made for serious business reasons. However, because of the rule in subparagraph 249.1(1)(b)(ii), the partnership's subsequent fiscal period would have to end on December 31 of Year 1, so that unless the partnership agrees to have more than one fiscal period end in the same calendar year, we would consider the partnership's fiscal period to be the calendar year.