A limited partnership ("LP") with an October 31 fiscal period acquires property eligible for the Quebec investment tax credit for manufacturing and processing equipment ("Quebec ITC") and the Quebec capital tax credit, and each year allocates such credits to its limited partners, who claim such credits for their taxation year ending on December 31.
If the tax credits reduce the undepreciated capital cost (UCC) of the LP’s depreciable property, in which taxation year should the LP make the deduction given that, on October 31, it does not know whether the limited partners will use the credits in question – and how can such information be obtained from numerous limited partners? CRA responded:
[A] taxpayer is entitled to receive the amount of the Quebec capital tax credit that does not exceed the capital tax otherwise payable for the year, at the end of its taxation year … [and] is generally entitled to receive the Quebec ITC at the end of its taxation year. However, a taxpayer is not entitled to receive that portion of one of these credits that is carried forward to a subsequent taxation year.
… [S]ince the taxpayer entitled to receive an amount in respect of these credits is a limited partner of the LP, that amount, for the purposes of subsection 13(7.1), is deemed to have been received by the LP on December 31 of the particular year under subsection 13(7.2). In this case, the assistance reduces the capital cost of the depreciable property that qualifies for it, and thereby the UCC of the classes to which the property belongs, in the LP's taxation year that ends on October 31 of the year following the particular year.
… [A]n LP must make arrangements with its partners to provide [the required] information to the LP … .