2017-0728581I7 Ss 125(3.2) & 125(8) amending the business limit

Principal Issues: Whether corporations can amend the assignment of the business limit under subsection 125(3.2) and the assignment of the specified partnership business limit under subsection 125(8).

Position: Yes.

Reasons: The prescribed forms required by both CCPCs detailing the assignment of the business limit under subsection 125(3.2) may be amended provided the amended business limit does not change the amount assigned for a taxation year of any taxpayer for which a reassessment is statute-barred. Similarly, the assignment of the specified partnership business limit under subsection 125(8) may be amended provided the particular year is not statute-barred.

Section: Godson, Gillian

                                    April 5, 2018

Revenue Collections Directorate                HEADQUARTERS
Revenue Collections
Southern Albert TSO                        Income Tax Rulings
                                      Directorate
Attention: Assistant Director Catherine Berry        G. Godson

                                    2017-072858

Subsection 125(3.2) and 125(8) – amending an assignment of the business limit 

We are writing in reply to your enquiry of October 20, 2017, requesting our response to questions from the CPA forum – Saskatchewan. We apologize for the delay in responding.

As noted in the enquiry, time did not permit a response to some of the questions received from the CPA forum in Saskatchewan. For that reason, some of the questions were submitted to our Directorate for separate reply. Accordingly, enclosed please find our response to Question 1. 

Question #1 – Amending Business Limit/Specified Business Limit Allocation

The CRA had previously stated (see CRA Views 2009-0351721E5 dated March 29, 2011) that an associated group of Canadian-controlled private corporations (“CCPCs” or a “CCPC”) could file amended T2 Schedule 23s provided that the amended allocation agreement did not change the amount allocated to any associated corporation for a taxation year for which a reassessment is statute-barred.

Will this administrative position continue to apply with respect to an amended assignment of a partner’s specified partnership business limit / an amended assignment of the business limit by the “first corporation” to a “second corporation” that earned specified corporate income from the first corporation?

CRA Response

Subsection 125(3.2) of the Income Tax Act (the “Act”) provides that a CCPC (the “first CCPC”), can assign all or any portion of its business limit (generally determined under subsections 125(2) and (3)) to another CCPC (the “second CCPC”) if the second CCPC has an amount of income for its taxation year that is referred to in subparagraph 125(7)(a)(i) of the definition “specified corporate income”.

In addition to the other requirements in subsection 125(3.2), paragraph 125(3.2)(d) provides that both CCPCs must file a prescribed form with the Minister in their return of income for their respective taxation years for the assignment to be valid.

The CRA will generally accept the amended forms detailing the assignment of the business limit provided the amendments do not result in a change in the business limit for a taxation year of any taxpayer for which a reassessment is statute-barred.

The “specified partnership business limit” (“SPBL”) is defined in subsection 125(7) of the Act. In general terms, a person’s SPBL for a taxation year is the person’s proportionate share of the partnership’s notional small business limit reduced by any amount that the person assigns to a “designated member” (as defined in subsection 125(7)) of that partnership under subsection 125(8).

Where a CCPC is a designated member of a partnership, its income from providing services or property to the partnership is not eligible for the small business deduction unless an amount is assigned to the CCPC under subsection 125(8) by a person that is a member of the partnership. In general terms, a person that is a member of a partnership can assign all or part of the person’s SPBL to a CCPC if the CCPC is a designated member of that partnership and meets the conditions specified by subsection 125(8).

Accordingly, where all of the conditions under subsection 125(8) are met and there is a sufficient amount of SPBL, a person can make an assignment to more than one designated member. In addition, a designated member can receive an assignment from more than one person.

Similar to the assignment of the business limit under subsection 125(3.2), an assignment of the SPBL under subsection 125(8) may be amended provided the taxation years are also not statute-barred.

For your information, unless exempted, a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Revenue Agency’s electronic library. A severed copy will also be distributed to the commercial tax publishers, following a 90-day waiting period (unless advised otherwise), 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 a taxpayer. Requests for this version should be e-mailed to: ITRACCESSG@cra-arc.gc.ca.

We trust these comments will be of assistance.

Terry Young, CPA, CA
Manager, Administrative Law Section
International Division
Income Tax Rulings Directorate

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2018

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2018