Principal Issues: [TaxInterpretations translation] What is the fiscal period of a business or property of a corporation that begins on December 31, 1996 and ends on January 3, 1998?
Position: For purposes of assessment under the Income Tax Act, the fiscal year of the business or property of the corporation ends on January 3, 1998, and the subsequent fiscal year begins on January 4, 1998. In certain specified circumstances, the corporation's fiscal period will be deemed to end on December 31, 1997.
Reasons: Income Tax Act.
XXXXXXXXXX 2005-013170
May 29, 2006
Dear Sir,
Subject: Request for Technical Interpretation - End of a corporation's fiscal period
This is further to your email dated May 17, 2005, in which you requested a technical interpretation on the application of section 249.1 of the Income Tax Act (the "Act") to the business or property of a corporation. In particular, you wish us to review the appropriateness of Technical Interpretation 9823456 which we issued on October 1, 1998. We apologize for the lengthy delay in responding to your request.
RELEVANT FACTS
Your request for an interpretation is based on the facts set out in Interpretation 9823456 issued by the Canada Revenue Agency ("CRA"). That interpretation was intended to determine the length of a corporation's fiscal period of a business or property - and the beginning of the subsequent fiscal period - where it began on December 29, 1996 and ends on January 3, 1998.
QUESTION
In your letter, you indicated that you do not understand why the fiscal period of the business or corporate property remains unchanged and can end on January 3, 1998 and not on December 31, 1997.
ANALYSIS
Section 249.1 defines the term "fiscal period" for the purposes of the Act. Subsection 249.1(1) defines a fiscal period of a corporation's business or property as the period for which the accounts of the corporation are made up for purposes of assessment under the Act. In the case of a corporation that carries on a business or holds property, its fiscal period cannot extend beyond 53 weeks.
Subsection 249.1(3) provides that where the fiscal period of a business or property of a corporation ends at a particular time, the subsequent fiscal period of the business or property of the corporation is deemed to begin immediately after that time.
Based on the facts of this case, we confirm that the corporation's fiscal period can run from December 29, 1996 to January 3, 1998 - a period not exceeding 53 weeks - and that the subsequent fiscal period of the corporation's business or property begins on January 4, 1998.
We understand that subsection 249(3) may cause some confusion. That provision provides for a taxation year end where a corporation has a fiscal period of more than 365 days and the corporation does not have a taxation year ending in a particular calendar year. We have assumed that your conclusion - that the corporation's fiscal period must end on December 31, 1997 - is based on the application of that provision.
We wish to clarify that subsection 249(3) does not affect the length of the fiscal period of a corporation's business or property. Instead, the deeming rule in subsection 249(3) has certain consequences, including the following:
- An unpaid amount that is otherwise subject to the provisions of subsection 78(4) must be paid no later than 180 days after the deemed year-end determined under subsection 249(3);
- The tax return will be required to be filed within six months of December 31, 1997;
- Subsection 15(2.6) requires that a loan to a shareholder made on January 3, 1998, be repaid on or before December 31, 1998 rather than January 3, 1999 in order to avoid including the debt in the shareholder's income for 1998.
We hope that these comments are of assistance.
Best regards,
François D. Bordeleau, LL.B.
Individuals, Business and Partnerships Section
Income Tax Rulings Directorate