CRA confirms that dissolution of top-tier partnership eliminates reserve

In 2013-0499681E5, the CRA confirmed that dissolution of a top-tier partnership eliminates any reserve for qualifying transitional income (QTI) in respect of that partnership. The 2011 federal budget eliminated the deferral of corporate tax through the use of partnerships generally by requiring a December 31 year end for each corporate partnership. A transitional reserve was introduced at the time to lessen the impact of this basic rule. However, in order to qualify for the transitional reserve in any year, the corporate partner must have been a member of the partnership continuously from before March 22, 2011 to the end of the taxation year in which the corporate partner is claiming the reserve. Although certain exceptions are available, none applies where the partnership itself is dissolved. Accordingly, the CRA concluded (on the facts presented) that dissolution of a top-tier partnership in tiered partnership structure would eliminate the transitional reserve of a corporate partner in respect of that top-tier partnership.