Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Can amounts be allocated to members of the partnership according to subsection 127(8) of the Act where the amount of qualified expenditure is determined in respect of the partnership for a taxation year that ends in a taxation year of a partner that is statute-barred?
Position:
Yes.
Reasons:
In our view, once an amount is determined in respect of the partnership under paragraph 127(9)(a) of the definition of investment tax credit for a taxation year of a partnership, an amount should be added, as required by subsection 127(8) of the Act, in computing the investment tax credit of a partner even if the amount concerns a taxation year of a partner that is statute-barred.
October 16, 1997
Headquarters Headquarters
Tax Incentive Audit Sylvie Labarre
123 Slater Street, 2nd Floor (613) 957-8953
Attention: Mel Machado
7-971086
XXXXXXXXXX
This is in reply to your memorandum dated April 23, 1997 concerning the allocation of investment tax credits of a partnership to its partners. We apologize for the delay in responding to your request.
XXXXXXXXXX sent T661s and T2038s for taxation years ending XXXXXXXXXX inclusively. The expenditures claimed on the T2038s are "qualified expenditures" as defined in subsection 127(9) of the Income Tax Act (the "Act"). Amounts were added in computing the investment tax credit of all the partners for all those years.
You have asked whether amounts can be allocated to members of the partnership according to subsection 127(8) of the Act where the amount of qualified expenditure is determined in respect of the partnership for a taxation year that ends in a taxation year of a partner that is statute-barred.
Furthermore, although not specifically requested in your memorandum, we have taken the liberty of commenting on the application of subsection 127(12.1) of the Act in that particular situation.
For the purposes of our comments, we assume that there are no specified members of the partnership in the taxation years in question. The references to the Act are to those applicable to the relevant years under audit. However, despite the differences in the references and wording, in general, the method of determining the investment tax credit has not changed.
It is our opinion that the definition of investment tax credit under subsection 127(9) of the Act is not subject to the statute-barred limitations under subsection 152(4) of the Act, due to the wording in paragraph 127(9)(c) of the definition of investment tax credit. Paragraph (c), as it then read, provided a seven-year carryforward and a three-year carryback for credits earned by the taxpayer.
The amount of investment tax credit (as defined in subsection 127(9) of the Act) available at the end of a taxation year of the taxpayer must be calculated on an ongoing annual basis. This procedure also applies, inter alia, to the determination of the amounts which satisfy the definition of qualified expenditure regardless of whether or not the expenditure was made in a year that is now statute-barred. Therefore, an amount could be determined in respect of the partnership under paragraph 127(9)(a) of the definition of investment tax credit for a taxation year of a partnership that ends in a particular year of a partner that is statute-barred.
Subsection 127(8) of the Act provides a rule for allocating the investment tax credit that would have been available to the partnership, if it were a person, to its partners. In our view, once an amount is determined in respect of the partnership under paragraph 127(9)(a) of the definition of investment tax credit for a taxation year of a partnership, an amount should be added, as required by subsection 127(8) of the Act, in computing the investment tax credit of a partner even if the amount used in computing the investment tax credit relates to a taxation year of a partner that is statute-barred.
Subsection 127(12.1) of the Act contemplates a reduction of the expenditures of a current nature of a partnership for the purposes of section 37 of the Act. The result of the application of subsection 127(12.1) of the Act would be a reduction of the total current expenditures computed under paragraph 37(1)(a) of the Act. Paragraph 37(1)(a) of the Act is a pool of expenditures of a current nature made by the partnership in taxation years ending after 1973 and the total of those expenditures should be computed each year. In the situation you described, since the amount of the expenditures of a current nature for the fiscal period of the partnership in respect of which the allocation was made under subsection 127(8) of the Act would be reduced pursuant to subsection 127(12.1) of the Act, then the computation of the total expenditures under paragraph 37(1)(a) of the Act for that fiscal period and the subsequent taxation years of the partnership would be changed.
As a result of that change, the total of amounts at the end of a taxation year in respect of the partnership under paragraphs 37(1)(d) to (h) of the Act could exceed the total of amounts determined at the end of the year in respect of the partnership under paragraphs 37(1)(a) to (c.1) if the partnership deducted the expenditures in the taxation years preceding the change. In our view, the excess, if any, would be taxable under paragraph 12(1)(v) of the Act and this paragraph would still apply in a subsequent taxation year of the partnership that ends in a taxation year of a partner that is not statute-barred so that the reduction contemplated by subsection 127(12.1) would be taxable income of the partners. The excess is not eliminated through an add back under paragraph 37(1)(c.1) of the Act since no amount was included in income under paragraph 12(1)(v) in previous years.
We trust that our comments will be of assistance to you.
Marc Vanasse CA
Manager
Resources, Partnerships and
Trusts Section
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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