Section 249.1

In 2012-0438481E5, a corporation with a February 28 year end was not entiled to file on the basis of a February 29 year end in a leap year. Is it CRA's practice to require re-filings where a historical February 28 year-end is filed with a February 29 year end in leap year? CRA responded:

We use the history of the taxpayer's filing pattern to determine the taxpayer's intent with respect to their year-end:

• If the taxpayer has always filed with a February 28 year-end, even in leap years, and then decides (in a leap year) to file with a February 29 year-end, the IT Rulings Document referenced above would apply as their filing history would indicate that they had originally picked "February 28" as their year-end, and are now trying to change it.
• If historically the taxpayer has always filed with a February 28 year-end in non-leap years, and with a February 29 year end on leap years, we acknowledge that the taxpayer intends to have picked the "last day of February", and not the specific date "February 28" as their year-end.

Where a corporation holding real estate acted as bare trustee for its beneficial owner, which was another corporation acting for a group of co-owners of the real estate, s. 249.1(1)(b) would apply if some of the co-tenants were individuals or other entities described in s. 249.1(1)(b).

in the situation where a corporate general partner of the partnership has no entitlement in the particular year to profits of the partnership because of a preferential share of the individual limited partner with the threshold above which the general partner is entitled to participate not having been exceeded, the corporate partner nonetheless would be considered to have a share of the income of the partnership for purposes of s. 249.1(2), so that the election in s. 249.1(4) would not be available.

Partnership A, all of whose members are individuals who have elected under s. 249.1(4) since 1995 to have an off-calendar fiscal period end of June 30 for Partnership A, incorporates Aco which forms Partnership B with professional corporations that deal at arm's length with Partnership A's members. Could Partnership A retain its off-calendar fiscal period end under s. 249.1(4)?

CRA responded:

[T]he requirement in subparagraph 249.1(4)(b)(ii) is that "the partnership is not a member of another partnership". Accordingly…Aco becoming a member of Partnership B would not preclude Partnership A from retaining its off-calendar fiscal period end under subsection 249.1(4).

Where a proprietorship has not filed an s. 249.1(4) election, the fiscal period of the business will always be from January 1 to December 31 of any calendar year. Where an individual proposes to incorporate a proprietorship, the individual could request (pursuant to s. 249.1(7)) a change in the fiscal period of the business to end immediately before the time of the transfer of the business (so that the proprietorship can claim capital cost allowance for the (shortened) fiscal period that would end immediately before the transfer.

Where the income from a rental property held in co-ownership by a corporation, an individual and a trust has been reported based on a June 30 fiscal period, the corporation will not be required to recognize any additional amount for the six-month period ending on December 31, 1995 notwithstanding the application of s. 249.1 to the individual and trust.

A top-tier partnership, where the lower-tier partnerships have calendar fiscal periods as required by s. 249.1(1)(c), will have a loss from a given source up to the transfer date for the sale by a partner of his interest but not necessarily for its calendar fiscal period. Would CRA grant a hypothetical request to change the partnership's fiscal period end from December 31 to the day before the transfer date to ensure that the former partner can be allocated a loss based on the shortened fiscal period? CRA stated:

[R]equests for changes in fiscal periods … [must] 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. …[T]he 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 … 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).

s. 249.1(8) requires that the particular day that may be elected to end the fiscal period of a partnership must be after March 22, 2011 and before the day on which that fiscal period would otherwise end. Accordingly, where the partnership fiscal period otherwise would end on August 31, 2011, the members of the partnership may not elect to make a single-tier period alignment to end the partnership fiscal period on October 31, 2011 (the year end of such members).

Where three corporations with calendar year-ends were members of Partnership X with a calendar fiscal period end, and one of the corporations and Partnership X were the members of a bottom-tier partnership (Partnership Y) with a fiscal period end of January 31, it would be possible for the members of Partnership X to make a multi-tier alignment election under s. 249.1(9) so as to cause the first aligned fiscal period of Partnership X and Y to end on January 31, 2012 (with Partnership X thereby having a one month stub fiscal period), provided the other conditions of s. 249.1(10) were satisfied.