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New Filing Requirements for Partnerships

Subject: Partnerships Number: 10-25 Date: 9/23/2010

Partnerships that never filed before may now have to

The Income Tax Act requires all partnerships to file an annual information return in prescribed form (currently Form T5013). One partner can file a partnership return on behalf of the partnership and its partners.

Administratively, it has been the CRA’s policy that most partnerships with fewer than six partners need not file an annual information return. On September 17, 2010, the CRA announced a change to this administrative exemption that will be effective for partnership years ending on or after January 1, 2011.

The new administrative policy requires an annual information return (still Form T5013) to be filed by a partnership that carries on a business in Canada, or a Canadian partnership with Canadian or foreign operations or investments if:

1. at the end of the fiscal period, the partnership

   a. has an absolute value of revenues plus an absolute value of expenses of more than $2 million; or

   b. has more than $5 million in assets

OR

2. at anytime during the fiscal period, the partnership

   a. is a tiered partnership (has another partnership as a partner or is itself a partner in another partnership);

   b. has a corporation or a trust as a partner;

   c. invested in flow-through shares; or

   d. is requested to file a return by the Minister.

The "absolute value of revenues plus absolute value of expenses" means total revenues PLUS total expenses from the partnership’s financial statements (not revenue minus expenses). For example, a partnership with gross revenue of $1 million and cost of goods sold of $500,000 and total expenses of $1.25 million would have an absolute value of revenues plus an absolute value of expenses of $2.75 million (1 million plus 500,000 plus 1.25 million) and would be required to file a return.

In addition, "assets" means the cost of all tangible and intangible assets, without taking into account the depreciation.

This means that the partnerships that never filed before may now have to file a return if they meet the new requirements or have a corporation or a trust as a partner. Partnerships, where all the partners are individuals, will not have to file a return (even if there are more than five partners) unless its revenues plus expenses are $2 million or more, or its gross assets exceed $5 million.

The CRA is also in the process of updating the partnership information return for the 2011 tax year, so more reporting changes may be forthcoming.

While a partnership may not be required to file an annual information return, as addressed in Tax Tip 04-09, there may be benefits to filing the return. In particular, filing an annual information return may limit the period during which the CRA could recalculate the partnership’s income.

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The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.