Principal Issues: How is the value for "M" in the definition of specified partnership income calculated?
Position: It is the lesser of $300,000 and $822 times the number of days the partnership operated in its fiscal year.
Reasons: This is the calculation for the example where a corporation had a 2005 year-end.
2005-013739
XXXXXXXXXX Charles Rafuse
613-957-8967
July 27, 2005
Dear XXXXXXXXXX:
Re: Specified Partnership Income
This is in reply to email of June 20, 2005, concerning the subsection 125(7) of the Income Tax Act (the "Act") definition for "specified partnership income".
Specifically, you have asked how to calculate "M" which is one on the variables in the formula for determining the amount of the specified partnership income. You have given an example where a partnership year-end is February 29, 2004 and the corporate year-end is January 31, 2005.
Our Comments
In determining the "specified partnership income" of a corporation for a taxation year, the value for M in the definition of "specified partnership income" in subsection 125(7) is the lesser of $300,000, and the product obtained when $822 is multiplied by the total of all amounts each of which is the number of days in a fiscal period of the partnership that ends in the year. This subsection was amended applicable to the 2003 and subsequent taxation years except that, for taxation years that begin before 2005, the references in the description of M to "$300,000" and "$822", are to be read, for fiscal periods of a partnership that end in a corporation's 2003 taxation year, as "$225,000" and "$617", respectively; and for fiscal periods of a partnership that end in a corporation's 2004 taxation year, as "$250,000" and "$685", respectively. Since the example you provided had a fiscal period of a partnership that ended in a corporation's 2005 taxation year, $822 is the amount to be used in determining "M".
The value for "M" is therefore the lesser of $300,000 and the product obtained when $822 is multiplied by the total of all amounts each of which is the number of days in a fiscal period of the partnership that ends in the year. Assuming that the partnership was operating for a full 12 months for the fiscal period that ended on February 29, 2004, the value of "M" would be $300,000 because the total of 365 times $822 is $300,030.
We trust this information is helpful.
Yours truly,
Charles Rafuse
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch