W hat are the tax implications of a member of a corporate partnership having a fiscal yearend different from that of the partnership? The latest federal budget provides a new answer to that question. Previously, partnerships owned by corporations could defer taxes on their income. They did this by setting the year-end of the partnership on a date after the year-end of the corporate partners. For example, if a corporate partner had a March 31 year-end, the partnership could have an April 30 year-end in order to defer the partners’ income taxes on 11 months of income from the partnership. The budget proposals of March 22, 2011 will do away with this deferral opportunity.
Henceforth, each corporate partner will be required to include in its current fiscal year its share of the partnership income calculated on the deferred portion of the partnership’s fiscal year. This period is referred to as the “stub period.”
There will surely be some fine-tuning of the calculations but generally this new rule applies to all corporate partners, other than professional corporations,
that have year-ends of March 23, 2011, or later. “Some clients were concerned about the additional tax burden of having to include additional income in
their fiscal years ended March 31,” says Tax Partner Sunita Arora.
“The government has made a transitional reserve available to permit the stub-period income to be brought into income over five years, using a graduated formula.”
Furthermore, the Canada Revenue Agency has stated that they will also apply similar rules to members of joint ventures and co-tenancies. At this point, these
details have not been released.
