Old 34.2
Administrative Policy
19 February 1997 T.I. 962474
A newly-appointed judge is provided with a numerical example "which reflects that the allocation of income between the year of appointment and the year subsequent to the year of appointment would be approximately the same whether the appointment to the bench occurs in 1994, when the provisions of former section 24.1 and subsection 99(2) applied, or the appointment to the bench occurs in 1996 and the provisions of paragraph 249.1(1)(b) in section 34.2 of the Act apply".
20 February 1997 Memorandum 963707
"It is unlikely that the services of a financial planner would be considered to be similar to those of an accountant. In any event, in your particular case, the fact that the taxpayer is precluded from providing accounting services would also appear to prevent the taxpayer from meeting the all or substantially all test."
Subsection 34.2(1) - Definitions
Adjusted Stub Period Accrual Income
Administrative Policy
12 April 2012 T.I. 2012-0436121E5
A corporation with a July 31 taxation year holds an interest in a single-tier partnership with August 31 fiscal period ends. However, the corporation does not have a significant interest in the partnership until August 31, 2012; and in August 2013 it disposes of a portion of its partnership interest so that it no longer holds a significant interest in the partnership on August 31, 2013.
The ASPE is not required to be computed for the corporation's July 31, 2011 and July 31, 2012 taxation years, as it will not hold a significant interest on the August 31 fiscal period end included in those years - and conversely, for the July 31, 2013 taxation year for which the ASPA will be required to be computed under the single-tier branch (para. (a)) of the definition. For this latter year, the ASPA amount will not be eligible as qualified transitional income, as the July 31, 2013 year is not the corporation's first taxation year which ends after March 22, 2011.
As the corporation will not hold a significant interest in the partnership on August 31, 2013, ASPA will not be required to be computed for its July 31, 2014 taxation year.
8 February 2012 T.I. 2011-042541 -
a corporation with a June 30 year end and which is a member of a calendar year partnership switches to a calendar year. Discussion including numerical example as to how this affects its ASPA and the transitional reserve adjustments.
Articles
Shane Onufrechuk, Warren Pashkowick, "Tax Considerations of Major Construction Projects", 2014 Conference Report, Canadian Tax Foundation, 10:1-35.
Deferral with choice of partnership year-end with partnership in start-up (p. 10:5)
Many major construction projects are not taxable for a number of years, and their tax exposure may grow over time as operational efficiencies are achieved. Therefore, significant tax deferral benefits may result from choosing fiscal periods for the partnership that differ from the partners' taxation year-ends.
Specifically, although the stub period accrual rules as set out in section 34.2 require the partners to include an estimate of the stub period income in their taxable income, this amount is generally determined on the basis of the prior year's income of the partnership. To the extent that taxable income associated with the major construction project is likely to increase over time, the deferral of this growth in taxable income may be possible if the fiscal period of the partnership is different from that of its partners.
Subsection 34.2(2) - Income inclusion — adjusted stub period accrual
Administrative Policy
4 November 2014 T.I. 2014-0539191E5 - ASPA under 34.2(2)
Corp A, which has a significant interest in a partnership which, like Corp A, has a calendar year end, amalgamates on august 1, 2014 so that it has tow 2014 year ends on July 31 and December 31. Does Corp A have an income inclusion under s. 34.2(2) for its July 31, 2014 year? CRA stated:
Corp A will not have an income inclusion under subsection 34.2(2) in respect of the partnership for its taxation year ending July 31, 2014 since no fiscal period of the partnership ends in that short taxation year. Furthermore, Amalco will not have an income inclusion under subsection 34.2(2)…since there will be no misalignment between its taxation year-end and the partnership's fiscal period end (i.e. both end December 31, 2014).
Subsection 34.2(11) - Transitional reserve
Administrative Policy
9 April 2014 T.I. 2013-0503421E5 F - Transitional reserve
Can a corporation with qualifying transitional income respecting a partnership in which it has a significant interest claim a transitional reserve (in circumstances where there is no multi-tier alignment) under s. 34.2(11) when the partnership realizes a loss in the first taxation year ending after 22 March 2011 and earns income in the second and third taxation years? CRA stated (TaxInterpretations):
[A] corporation, in the above situation, generally can claim a transitional reserve in the course of the second or third taxation year ending after 22 March 2011 if the partnership in which it hold a significant interest generates income in the course of those two taxation years, if all the conditions contemplated in subsection 34.2(11) are satisfied and if the reserve is neither limited by the application of subparagraph 34.2(11)(a)(iii) nor is prohibited by the terms of subsection 34.2(13).
14 February 2014 T.I. 2012-0454481E5 F - Safe Income
The only source of income of ABC, a CCPC, is its interest in a partnership (P) with a fiscal period end of XX. ABC has an income inclusion under s. 34.2(2) and claims a reserve under s. 34.2(11).
CRA confirmed that the claiming of the s. 34.2(11) reserve and its amount was in the discretion of ABC.
Subsection 34.2(13) - No reserve
Paragraph 34.2(13)(a)
Administrative Policy
4 December 2013 T.I. 2013-0499681E5 - Transitional reserve - tiered partnership
Can a corporate partner of a top-tier partnership in a multi-tier partnership structure continue to claim a transitional reserve under s. 34.2(11) in respect of the top-tier partnership after the top-tier partnership has been dissolved? After referencing s. 34.2(13)(a), CRA stated:
Thus, the transitional reserve under subsection 34.2(11) in respect of a particular partnership cannot be claimed after that partnership ceases to exist as the requirement that the corporation continue to be a member of that partnership to the end of the taxation year would not be met.
Additionally, subparagraph 34.2(13)(c)(i) provides that a corporation cannot claim an amount under subsection 34.2(11) in respect of a partnership for a taxation year if the taxation year ends immediately before another taxation year at the beginning of which the partnership no longer principally carries on the activities to which the reserve relates.
Subsection 34.2(14) - Deemed partner
Administrative Policy
2014 Ruling 2013-0516071R3 - Reorganization
The units of an LP (LP1) which already has earned profits for the year and which holds most of the units of LP2 will be transferred to a Lossco (which is affiliated and related by virtue of a common indirect parent) before the fiscal year end of LP1 – so that most of those LP1 profits will be allocated to Lossco. CRA ruled that s. 34.2(14) will deem Profitco to be a member of LP1 continuously until the end of its XX taxation year for purposes of s. 34.2(13)(a).
See summary under s. 111(1)(a).