Principal Issues: [TaxInterpretations translation] 1. Could a partnership, which generates income from property and has always had a December 31 year-end, have a year-end other than December 31 in Year 1? 2. Could the same partnership subsequently have a year-end on June 30, starting in the following year?
Position: 1. No. If the activities of XXXXXXXXXX generate income from property, the partnership should have a December 31 fiscal period end in Year 1, and even if the Minister were to accept a fiscal period end prior to December 31 in the particular situation, the partnership would still have a second December 31 fiscal period end. 2. For the same reasons as in 1, the partnership should have a December 31 fiscal period end in Year 2 if the partners remain the same.
Reasons: 1. Application of subparagraph 249.1(1)(b)(ii) and its paramountcy over 249.1(7). 2. Same grounds as in 1.
January 14, 2011
Rimouski Tax Services Office Income Tax Rulings Directorate Audit Division Business and Partnerships Division Attention: Diane Brunet Lucie Allaire, Advocate, CGA. D. Fisc. 2010-038326
Partnership fiscal period end
This is in response to your e-mail of October 7, 2010 requesting our opinion on the application of section 249.1 of the Income Tax Act (the "Act") respecting the fiscal period end of a partnership, further to various telephone exchanges (Brunet/Allaire).
Unless otherwise indicated, all statutory references herein are to the provisions of the Act.
You presented a situation (the "Particular Situation"), where two individuals, each holding 50% of the units of a partnership, 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. You indicated that this is not the partnership's first fiscal period and that the partners did not file an election pursuant to subsection 249.1(4) in a previous year.
You stated that the partnership has always had a December 31 fiscal period end and that it holds, almost exclusively, XXXXXXXXXX from which it earns property income.
Therefore, you wish to know if the Canada Revenue Agency ("CRA") could 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.
Our Comments
For the current purposes, we have assumed that the Particular Situation involves a partnership that will continue to exist at the time of admission of a new partner.
The preamble to subsection 249.1(1) provides that a fiscal period of a business or property of a partnership means the period for which the partnership’s accounts in respect of the business or property are made up for purposes of assessment under the Act.
However, by virtue of subparagraph 249.1(1)(b)(ii), barring exceptions, the fiscal period cannot extend beyond the end of the calendar year in which the fiscal period began in the case of inter alia a fiscal period of a business or property of a partnership at least one member of which would be an individual, a professional corporation or a partnership that has the individual or the professional corporation as a member, if the fiscal period ended at the end of the calendar year in which it began. Here, since, for the purposes of the Act, a trust is deemed to be an individual in respect of the property of the trust, subparagraph 249.1(1)(b)(ii) would apply.
Notwithstanding subsection 249.1(1), subsection 249.1(7) provides that no change in the time when a fiscal period ends may be made without the concurrence of the Minister. Generally, for the CRA to approve a fiscal year change, the request must contain a bona fide business reason, which is not a personal purpose and is not for the reduction or deferral of income tax.
In the Particular Situation, it 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.
Finally, in the Particular Situation, we are of the view that the partnership should have a property year-end that ends on December 31 of Year 2.
Access to Information
For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. Requests for this latter version should be made by you to Ms. Celine Charbonneau at (613) 957-2137. In such cases, a copy will be sent to you for delivery to the taxpayer.
We hope that these comments are of assistance.
François Bordeleau, Advocate
Manager
Business and Partnerships Section
Income Tax Rulings Directorate.