A group of corporations with a fiscal period end of February 28, 2007, amended their fiscal period end to December 31, 2007. Does s. 125(5) deprive the group corporation, that was using the entire business limit, of a significant portion of the business limit given the change in the amount of the business limit from $300,000 in 2006 to $400,000 in 2007, and that the fiscal period straddled two calendar years? CRA responded:
[S]ubsection 33(10) of Bill C-28, assented to on February 21, 2007, specifies the use of the amount of $400,000 as the business limit, when applying subparagraph 125(5)(a)(i) in a situation such as yours.
Specifically, where a corporation has a taxation year straddling January 1, 2007, the business limit, calculated under paragraph 125(5)(a), for the second or subsequent taxation years must be the lesser of the following amounts:
- the business limit that would have been determined for the first taxation year ending in the calendar year if $400,000, not $300,000, were used to allocate amounts among associated corporations, and
- the business limit determined for the second or subsequent taxation years ending in the same calendar year.
In addition, the application of paragraph 125(5)(b) has the effect of limiting the business limit, otherwise calculated above, pro rata to the days in the last fiscal period.