Moore
February 2022 Newsletter

A partnership is not a taxpayer and is not required to file a regular income tax return. Instead, the partners report their shares of the income or loss of the partnership on their income tax returns.

However, in some cases the partnership must file an information return. The Income Tax Regulations require a Canadian partnership (all partners resident in Canada) for a fiscal period or a partnership that carries on business in Canada in a fiscal period to file the prescribed information return for that fiscal period.

Fortunately, the Canada Revenue Agency (CRA) provides some exemptions from the filing requirement.

Filing is not required by a farm partnership made up of only individual (non-corporate) partners. (This rule technically applies only to 2020 and earlier tax years, but the CRA has extended the rule by announcement every year and is expected to announce early in 2022 that the same rule applies to the 2021 tax year.)

Filing is not required if all partners are Status Indians, and the partnership earns all its income at a permanent establishment on a reserve.

More generally, for other partnerships, filing is only required for a fiscal period where:

  • at the end of the fiscal period, the partnership has an “absolute value” of revenues plus expenses of more than $2 million, or has more than $5 million in assets;

or

  • at any time during the fiscal period:
    • the partnership is a tiered partnership (has another partnership as a partner or is itself a partner in another partnership), or
    • the partnership has a corporation or a trust as a partner, or
    • the partnership invested in flow-through shares of a principal-business corporation that incurred Canadian resource expenses and renounced those expenses to the partnership, or
    • the CRA requests in writing that the return is required.

Basically, this means that a partnership with only individual partners that does not exceed the absolute values described above does not have to file the information return (subject to the CRA requesting the return).

In terms of the absolute value requirement, the CRA notes:

“The absolute value of a number refers to the numerical value of the number without regard to its positive or negative sign. To determine if a partnership exceeds the $2 million threshold, add total worldwide expenses to total worldwide revenues rather than subtract expenses from revenues as you would to determine net income.

The cost figure of all assets worldwide, both tangible and intangible, without taking into account the depreciated amount should be used to determine whether a partnership meets the criterion of more than $5 million in assets.”

It is therefore important to remember that the absolute value calculation means adding the revenues and the losses for the fiscal period, not taking the revenues net of the expenses. For example, if a partnership has $1.2 million in revenues and $900,000 in expenses, then absolute value is $2.1 million and the partnership will be required to file the return.

Information required

If the partnership is required to file the return for a fiscal period, the reported information includes:

  • the income or loss of the partnership for the fiscal period;
  • each partner’s name, address, and business number, Social Insurance Number or trust account number, as the case may be;
  • each partner’s share of the income or loss of the partnership for the fiscal period;
  • each partner’s share of a deduction, credit or other amount in respect of the partnership that is relevant in determining the partner’s income, taxable income, tax payable or other amount under the Income Tax Act; and
  • certain prescribed information if the partnership has made an expenditure in respect of scientific research and experimental development in the fiscal period.

When to file the return

If all the partners are all corporations, the return is due within five months after the end of the fiscal period.

If all the partners are all individuals (which includes trusts), the return is due by March 31 of the calendar year following the calendar year in which the fiscal period ends.

In any other case (for example, some partners are individuals, and some are corporations), the return is due by the earlier of five months after the end of the fiscal period and March 31 of the calendar year following the calendar year in which the fiscal period ends.

Who needs to file the return

Although each partner is responsible for the filing, any one partner can file the return on behalf of all the partners. As the CRA notes: “Once a partner files a return, we consider all partners to have filed it.”

Last modified on February 11, 2022 12:00 am