2018-0739141I7 Amending a statute barred partnership return

Principal Issues: 1. Whether the Minister may accept an amended partnership information return for a taxation year that is beyond the limitation period provided by subsection 152(1.4) of the Act, where no determination has been made prior to this period. 2. Whether the Minister may accept the request to amend a member of a partnership’s return of income, where no determination of the partnership information return for the particular year has be made and the partnership return is beyond the period provided by subsection 152(1.4) of the Act.

Position: 1. The Minister is not obligated to accept the amended partnership return. 2. Yes, in some circumstances.

Reasons: 1. In a situation where an amended partnership return has been filed beyond the three year period provided by subsection 152(1.4), the Minister is precluded from making a determination unless a waiver was filed, or one of the exceptions in 152(4) apply. Nevertheless, a partnership return is an information return only. Therefore, the Minister may accept the amended partnership return even though the Minister is precluded from making a partnership determination. 2. Subsection 152(4) provides that the Minister may reassess the return of income of a member of a partnership, without making a determination of the partnership under 152(1.4), provided the member’s return of income for the particular taxation year is not statute barred. An adjustment may also be accepted if it does not result in a change from a nil assessment to one with tax, interest or penalties payable.

Author: Godson, Gillian
Section: 152(1.2), 152(1.4), 152(3.1), 152(4)

                                April 17, 2018

Specialty Business Returns Section            HEADQUARTERS
Corporate and Specialty Returns Division        Income Tax Rulings
Business Returns Directorate                 Directorate

Attention: Carey Bernard                G. Godson

                                2018-073914

Subsection 152(1.4) – amending a partnership information return

We are writing in reply to your email of January 10, 2018, requesting our views on whether the Minister may accept a request to amend a T5013 partnership information return (“T5013”) for a fiscal year that is beyond the limitation period provided by subsection 152(1.4) of the Income Tax Act (the “Act”), where no determination has been made prior to the end of this period.

The details of the example provided in your inquiry are as follows:

*    The partnership consists of four members (Partner 1 – 60% interest, Partner 2 – 30%, Partner 3 – 10%, and Partner 4 – 0.01%). All members of the partnership are corporations.

*    The partnership filed its T5013 for the 2012 year within the timeframe provided by subsection 229(5) of the Income Tax Regulations (the “Regulations”).

*    The Minister did not make a determination or issue a Notice of Determination to the partnership within the three-year period required by subsection 152(1.4) of the Act.

*    Subsequent to the expiration of the three-year period in subsection 152(1.4), an amended T5013 was filed requesting an increase in the amounts deducted for capital cost allowance (“CCA”) and cumulative eligible capital (“CEC”). These requested changes would change the partnership’s reported income to a loss for the particular year. 

*    The CRA acknowledged receipt of the amended partnership return; however no determination was made of the partnership’s income or loss. 

*    The members of the partnership also requested to amend their respective income tax returns for the relevant taxation year to take into account the partnership loss. 

*    The CRA did not accept the request to amend the income tax returns of Partner 1, Partner 3 and Partner 4 on the basis that the taxation years were statute-barred. 

*    The CRA accepted the request to amend the income tax return of Partner 2 because Partner 2’s taxation year was not statute-barred. 

*    Partner 1 has asked the CRA to reconsider the request to amend its income tax return to reflect the partnership loss and remove the deduction for a non-capital loss from a prior taxation year that was originally claimed. The changes would not result in any change to taxable income (i.e., taxable income would remain nil). 

Our comments

Pursuant to subsection 152(1.4) of the Act, the Minister may determine any income or loss of a partnership for a fiscal period within three years after the later of the day on which an information return in respect of the partnership for the fiscal period is required to be filed and the day on which the return is actually filed. The Minister also has the authority to determine any deduction, amount or matter in respect of the partnership that is relevant in determining the tax liability of, and various amounts payable by, or refundable to, the members of the partnership under the Act for any taxation year.

In situations where the Minister has not made a determination and the three-year limitation period in subsection 152(1.4) has expired, the Minister may only make a determination in respect of the partnership where one of the exceptions in subsection 152(4) applies, which would include a waiver filed under subparagraph 152(4)(a)(ii) within the three-year period provided by subsection 152(1.4).

In general, where an amended T5013 is received beyond the three-year period provided by subsection 152(1.4), the Minister is not obligated to accept it. If the Minister accepts the T5013 and the information is captured in the CRA’s systems, a determination of the partnership income or loss is not made, nor is a Notice of Determination issued. Any notification sent to the partnership in this circumstance would merely be an acknowledgement that the information has been received and recorded. However, the Minister may use the information contained in the amended T5013 to reassess one or more of the partners provided that the taxation year of the particular partner or partners is not statute-barred.

In the case at hand, the partnership filed an amended T5013 beyond the three-year period provided in subsection 152(1.4). The CRA acknowledged receipt of the amended return and the revised information was entered into the CRA’s systems. As noted above, this did not cause a determination to be made or a Notice of Determination to be issued. In that regard, the period within which the Minister may make a determination in respect of the partnership information return for the particular year had expired so the Minister could not make such a determination. Nonetheless, the Minister could use the information in the amended T5013 to reassess the members of the partnership to the extent that the relevant taxation years were not statute-barred.

As noted above, the members of the partnership asked to amend their returns of income to reflect the change in the T5013 (i.e., from income to a loss). The request to amend the returns of income of Partner 1, Partner 3 and Partner 4 were denied due to the fact that the returns are statute-barred. Partner 2’s taxation year was reassessed to take into account the revised partnership results. In our view, as noted in our document 2005-011196, the Minister may reassess the return of income of a member of a partnership without making a determination of the partnership under subsection 152(1.4) of the Act provided the partner’s particular taxation year is not statute-barred. Furthermore, such a reassessment would not affect or be binding on the other partners. Accordingly, in our view, the Minister had the authority to issue the reassessment for Partner 2.

With respect to the request from Partner 1, in a situation where a taxpayer has been issued a notification that no tax is payable and the requested changes will not result in tax payable, the Minister may consider the request to amend the return because the change does not require the Minister to reassess the taxpayer. This position is explained in our technical interpretation 2013-050449 although we acknowledge that the current situation is more complicated than that contemplated in the 2013 file. Information circular IC 84-1 Revision of CCA Claims & Other Permissive Deductions provides further details of the CRA’s administrative policies with respect to requests to amending tax returns. In the case at hand, the adjustments requested by Partner 1 to reflect the change in the T5013 do not result in any change to the taxable income of Partner 1, as taxable income and tax payable would remain nil and no assessment would be required to implement the change. In that regard, it is our view the Minister may consider the requested adjustments. Whether the Minister agrees to the request would depend on the particular facts of the situation. 

You may wish to consult with the Legislative Application Section, Large Business Audit Division, Large Business Directorate, in ILBIB, or the Technical Applications Section, Small and Medium Enterprise Directorate in DCPB, if you require assistance in deciding whether to accept the adjustments of Partner 1 (and Partner 3 and Partner 4, if applicable) within the context of IC 841.

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 the taxpayer. Should the taxpayer request a copy of this memorandum, they may request a severed copy using the Privacy Act criteria, which does not remove taxpayer identity. 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
Legislative Policy and Regulatory Affairs Branch

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