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On November 29, 2011, the CRA announced their revised joint venture administrative policy with respect to the elimination of the deferral of joint venture income to the venturers. This policy is consistent with the new rules proposed for partnerships.
The technical interpretation released by the CRA reads as follows:
Assuming the 2011 Budget proposals are enacted as proposed, participant taxpayers who entered into joint venture arrangements will no longer be eligible to compute income as if the joint venture had a separate fiscal period. For taxation years ending after March 22, 2011, income from a joint venture will be required to be calculated for each participant taxpayer based on the fiscal period of the particular participant taxpayer.
This may result in the inclusion of significant incremental income of a participant taxpayer of a joint venture for the first taxation year of the participant taxpayer ending after March 22, 2011. Accordingly, for the first taxation year that ends after March 22, 2011, the CRA will allow, on an administrative basis, transitional relief similar to the relief as proposed under section 34.2 of the Income Tax Act (proposed section 34.2 is included in Bill C-13) for "qualifying transitional income" to members of partnerships.
The income that may generally qualify for this transitional relief will be based on the actual additional income for the stub period to the extent the amount would not have otherwise been included in income for the first taxation year of the participant taxpayer that ends after March 22, 2011.
This transitional relief will generally result in no additional income being included in the first taxation year of the participant taxpayer in the joint venture. Instead, the participant taxpayer will bring the additional income into its income over the five taxation years that follow that first taxation year in a manner similar to the reserve mechanism as provided for under proposed section 34.2. In general, and subject to the conditions as similarly stipulated under proposed section 34.2, the reserve mechanisms will effectively allow the participant taxpayer to include 15% of additional income in 2012, 20% in 2013, 2014 and 2015, and 25% in 2016.
For more information, please contact your local MNP tax advisor.
Related Topics:Canada Revenue Agency; Business Structures
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