Principal Issues: [TaxInterpretations translation] (1) Do the Quebec ITC and the Quebec capital tax credit reduce the UCC of the LP or the UCC of the limited partners?
(2) If the tax credits reduce the UCC of the LP, in which taxation year must the LP make the reduction, given that as at October 31 of a particular year, the LP is not in a position to know whether the limited partners will use such credits?
(3 ) The reduction of the UCC of the LP necessarily entails the feedback of the limited partners as to the amount used or refunded in the year. How is this managed where there are hundreds or even thousands of limited partners?
Position: (1) These credits reduce the LP's UCC.
(2) Question of fact. .
(3) A LP must make arrangements with its partners to provide it with the required information, which is not the responsibility of the CRA.
Reasons: Previous administrative positions and interpretation of the Act.
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2009-033173
Pierre-Luc Meunier
June 7, 2010
Dear Sir,
Subject: Investment tax credit and Quebec capital tax credit
This is in response to your email of July 10, 2009, in which you asked for our opinion on the impact of the above-mentioned credits on the capital cost of certain depreciable property in a particular situation. We apologize for the delay in responding to your request.
Unless otherwise indicated, all legislative references herein are to the provisions of the Income Tax Act (the "Act").
Facts
A limited partnership ("LP") carrying on a business in Quebec acquires property eligible for the investment tax credit for manufacturing and processing equipment (footnote 1) ("Quebec ITC") and the Quebec capital tax credit (footnote 2).
The LP taxation year-end occurs every October 31. The limited partners’ taxation year-end occurs every December 31.
Each year, the LP allocates to its limited partners the provincial tax credits to which they are entitled on the basis of each limited partner's interest. Each limited partner claims those credits for the taxation year ending on December 31 in respect of the LP's taxation year ending on October 31 of the same year.
Your understanding, based on subsection 13(7.2), is that the LP must reduce the undepreciated capital cost (“UCC”) of the classes in which the property eligible for the credits is included in the year in which the limited partner received or is entitled to receive each of the credits. However, as of October 31 of a particular year, the LP is not in a position to know whether the limited partners will use or be refunded the tax credits in question.
Questions
1. You wish confirmation that the amount of these credits reduces the UCC of the classes in which the property eligible for LP credits is included and not that of the limited partners.
2. If the tax credits reduce the UCC of the LP, in which taxation year should the LP make the deduction, given that, on October 31 of a particular year, the LP is not in a position to know whether the limited partners will use the credits in question?
3. The reduction in the UCC of the LP necessarily entails feedback from the limited partners as to the amount used or refunded in the year. How is this managed where there are hundreds or even thousands of limited partners?
Our Comments
It appears to us that the situation described in your letter and summarized below could constitute an actual situation involving taxpayers. As explained in Information Circular 70-6R5, it is not the practice of this Directorate to provide comments on proposed transactions involving specific taxpayers otherwise than in the form of an advance income tax ruling. If your situation involved specific taxpayers and one or more completed transactions, you should submit all relevant facts and documentation to the appropriate tax services office for its opinion. However, we can offer the following general comments that may be helpful.
The UCC of a class to which depreciable property held by a LP belongs is effectively calculated at the level of the LP.
Where, at a particular time, a member of a LP has received or is entitled to receive assistance from a government that can reasonably be considered in respect of depreciable property of the LP, subsection 13(7.2) provides that, for the purposes of subsection 13(7.1), the amount of such assistance is deemed to have been received at that time by the LP.
The capital cost of the depreciable property that generated either of such credits, at a particular time, is required to be reduced pursuant to subsection 13(7.1) by the amount of assistance that the LP is deemed by subsection 13(7.2) to have received before the particular time.
The issue of determining when a limited partner of a LP has received or is entitled to receive the Quebec ITC or Quebec capital tax credit is a question of fact.
We have already confirmed that 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 (footnote 3). We are of the view that a taxpayer 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.
In the situation you presented, since 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.
We understand that an LP may not be able to determine the amount of assistance that it is deemed to have received at a particular time without knowing the amount of assistance that was received, or to which there was an entitlement to receive, by its partners at that time. Therefore, an LP must make arrangements with its partners to provide this information to the LP, which is not the responsibility of the CRA.
Best regards,
François Bordeleau, LL.B.
Manager
Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate.
FOOTNOTES
1 By virtue of articles 1029.8.36.166.40 to 1029.8.36.166.60 of the Taxation Act, C.Q.L.R., c. I-3 ("T.A.")
2 By virtue of articles 1135.1 to 1135.12 L.I.
3 See Technical Interpretations 2007-0234681E5 and 2007-0227241E5.