CRA says mid-year amalgamation did not engage partnership deferral rules

Published by Ian Gamble

In 2014-0539191E5, a Canadian corporation (A Co) with a December 31 taxation year end had a significant interest in a partnership (Partnership) with a fiscal period also ending December 31.  On August 1, 2014 A Co amalgamated with its wholly-owned subsidiary forming Amalco, resulting in a deemed year-end for A Co of July 31, 2014.  Amalco established December 31 as its first taxation year end.  On these facts, the CRA confirmed that A Co would not recognize any income from the Partnership for A Co’s short taxation year January 1 to July 31, 2014.  The partnership income deferral rule in s. 34.2(2) would not apply to A Co because no fiscal period of the Partnership ended in A Co’s short taxation year.  Furthermore, the rule in s. 34.2(2) also did not apply to Amalco, because the end of the Partnership’s fiscal period fully aligned with Amalco’s first taxation year end: i.e., December 31, 2014.