Partnerships are distinctly different from corporations. Unlike corporations, they don’t have a separate and distinct legal identity from their participating shareholders and they are not taxed as if they are separate persons.
All of a partnership’s income and losses are distributed to its partners, who are then responsible for reporting their share of the partnership’s income on their income tax returns.
Partnerships have been required to file an annual information return since 1989.
However, the Canada Revenue Agency provided an administrative exemption from such a filing if the partnership had five or fewer members and no partner is another partnership.
Read Also
Key actions identified to address canola tariffs
Federal and Saskatchewan governments discuss next steps with industry on Chinese tariffs
The agency has now changed the criteria for how partnerships must file an annual information return, arguing that they have become more complex.
The changes are effective for fiscal periods ending on or after Jan. 1, 2011.
Instead of using the number of partners as the defining limit, CRA has introduced financial thresholds to determine reporting requirements.
For example, a partnership must file a T5013 Partnership Information Return if it has an absolute value of revenues plus an absolute value of expenses of more than $2 million for the fiscal period.
The absolute value is determined by adding the revenues to expenses rather than subtracting one from the other to give a net operating income.
The same is true for assets.
Partnerships with assets of more than $5 million must also file an information return. Assets in this case are determined as the cost value of all tangible and intangible assets without accounting for depreciation.
As well, a partnership must file if at anytime during the fiscal period in question it has another partnership as a partner or is itself a partner in another partnership. The same holds true if the partnership has a corporation or a trust as a partner.
Also, a partnership must file if it invested in flow-through shares of a principal-business corporation that incurred Canadian resource expenses and renounced those expenses to the partnership.
Then there is the catch-all requirement that even if none of the above relate to a partnership but the national revenue minister requests one in writing, then the partnership is trumped – it must file.
Whatever happened to those simpler times when it was only six or more partners that determined the need to file?
Larry Roche is a tax analyst with Farm Business Consultants Inc. Contact: fbc@fbc.ca or 800-860-7011.
