Principal Issues: [TaxInterpretations translation] Does a corporation's election pursuant to section 134.2 of the Income Tax Act affect its "fiscal period".
Position: No.
Reasons: The 134.2 election affects only the electing corporation's current taxation year and has no effect on its "fiscal period".
November 14, 2002
Ms. Marie-Christine Torchio Income Tax Rulings Directorate International and Non-resident's audit International Operations Section 446-2-1, Montreal TSO and Trusts Division 305 René-Lévesque Blvd. W. Éric Allard-Pouliot Montreal (Québec) H2Z 1A6 613-957-2097
2002-016995
Request for technical interpretation: Effect of 134.2 on a corporation's "fiscal period"
This is in response to your email of October 22, 2002, regarding the above subject. Specifically, you wish to know whether a corporation's election pursuant to section 134.2 of the Income Tax Act (the "Act") affects the corporation's "fiscal period".
The consequences of an election made pursuant to subsection 134.2(1) are set out in subsection 134.2(2). Under paragraphs 134.2(2)(a) and (b), the taxation year of the corporation that includes the time at which the election becomes effective is deemed to end immediately before that time, and a new taxation year of the corporation is deemed to begin at that time.
Contrary to subparagraphs 128.1(1)(a)(ii) and 128.1(4)(a)(ii) and paragraphs 149(10)(a) and 249(4)(d), the deeming rules set out in subsection 134.2(2) do not affect the "fiscal period" of a corporation that has made an election pursuant to subsection 134.2(1). Consequently, the "fiscal period" established by the corporation pursuant to section 249.1 will continue to be the corporation's "fiscal period" for taxation years subsequent to the one in which the election pursuant to subsection 134.2 is made. In order to change the time at which its "fiscal period" ends, a corporation that has made the election provided for in subsection 134.2(1) will have to comply with the terms and conditions set out in subsection 249.1(7) and obtain the Minister's consent.
Thus, if Canco has a fiscal period ending November 30, 2002, and elects pursuant to subsection 134.2 with an effective date of October 31, 2002, the following consequences will result:
(a) Deemed taxation year-end of October 30, 2002 pursuant to paragraph 134.2(2)(a);
(b) Start of a new taxation year deemed to begin on October 31, 2002 pursuant to paragraph 134.2(2)(b);
(c) The new taxation year deemed to begin on October 31, 2002 will end on November 30, 2002, in accordance with the fiscal period elected by the corporation pursuant to section 249.1; and
(d) If the corporation fails to change the date of its fiscal period pursuant to subsection 249.1(7), its taxation years subsequent to the one ended November 30, 2002 will begin on December 1 and end on November 30.
Please note that a copy of this memorandum will be severed using the Access to Information Act and will be available in the Legislative Access Database (LAD) located on the mainframe of the Canada Customs and Revenue Agency. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, the Legislative Access Bank version can be provided. Alternatively, the client may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Ms. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.
Best regards,
for the Director
Alain Godin, Manager
International Operations and Trusts Division
Income Tax Rulings Branch
Policy and Legislation Branch