2014-0529311E5 Change the fiscal period end of a partnership

Principal Issues: In the particular scenario involving a multi-tier partnership structure and a departing partner, would a request to end the fiscal period of the partnership on the day before the sale of the partnership interest be granted?

Position: In our view, no.

Reasons: It appears that the request is being made in order to obtain a tax benefit since it is being made so as to ensure that the former partner is allocated a loss based on the shortened fiscal period. Additionally, granting a request to change the fiscal period end of a partnership in a multi-tier partnership structure that results in the fiscal period ends of the partnerships becoming misaligned would be contrary to the underlying rationale of paragraph 249.1(1)(c).

Author: Tzortzis, Chrys
Section: 249.1(1), (7), (9)

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                                                                                                                                             2014-052931
                                                                                                                                             Chrys Tzortzis, CPA, CA

December 9, 2014

Dear XXXXXXXXXX:

Re:  Request to change the fiscal period end of a partnership

This is in response to your email of April 28, 2014 concerning a hypothetical request to change the fiscal period end of a partnership in a particular scenario.  We apologize for the delay in responding.

You provide a hypothetical scenario involving a multi-tier partnership structure where the fiscal period end of each partnership is December 31 due to the application of paragraph 249.1(1)(c) of the Income Tax Act (the “Act”).  A partner will be selling his partnership interest on a particular date (the “transfer date”) and it is anticipated that the partnership will have a loss from a given source up to the transfer date but the partnership may not have a loss from that source for its established fiscal period end of December 31.  A request will be made to change the fiscal period end of the partnership from December 31 to the day before the transfer date.  Due to paragraph 249.1(1)(c), the partnership will subsequently have a fiscal period end on December 31.  You are aware of subsection 96(1.01) of the Act which clarifies that, although a partner may have ceased to be a member of a partnership before the end of the partnership's fiscal period, an amount of the income or loss of the partnership is allocable to that former partner.  However, you recognize that a former partner cannot be allocated a loss where the partnership does not have a loss for its year-end.  Thus, the request to have the fiscal period of the partnership end before the transfer date is to ensure that the former partner can be allocated a loss based on the shortened fiscal period.    

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced).  It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.  The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations.

Our Comments

Pursuant to subsection 249.1(7) of the Act, no change in the time when a fiscal period ends may be made for the purposes of the Act without the concurrence of the Minister.  It is the CRA’s view that requests for changes in fiscal periods will be approved if they can be demonstrated to be prompted solely by sound business reasons other than obtaining tax benefits.  Additionally, neither the personal convenience of the taxpayer nor the saving or deferment of income taxes is accepted as a sound business reason.  We note that the request to have the fiscal period of the partnership end before the transfer date is to ensure that the former partner can be allocated a loss based on the shortened fiscal period.  Accordingly, in our view, it would seem unlikely that the Minister would concur with such a request.  Further, granting a request to change the fiscal period end of a partnership in a multi-tier partnership structure that results in the fiscal period ends of the partnerships becoming misaligned would be contrary to the underlying rationale of paragraph 249.1(1)(c).

We trust the above comments will be of assistance.

Yours truly,

G. Moore
for Director
Partnerships & Corporate Financing Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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