CRA’s new filing exemption for partnerships raises concerns

New Canada Revenue Agency (CRA) filing requirements for partnerships has raised concerns among partnerships that were previously exempt. The CICA addressed these concerns with CRA, which has offered some modifications.

For the 2011 taxation year, the CRA revised the partnership information return and introduced several new and revised forms and schedules. The new forms reflect CRA’s new administrative policy, announced in 2010, which cancels the exemption for partnerships with five or fewer members from filing an annual partnership information return. CRA recently extended transitional relief for some of the more onerous requirements resulting from this policy change for partnerships with 2012 year-ends.

In its place, CRA introduced a new exemption based on a financial activity threshold or the type of partnership. By basing the exemption on the complexity and financial magnitude of the partnership’s activities, CRA aims to focus its audits on partnership activities that create a higher risk of non-compliance.

However, the new rules will create new filing requirements for many partnerships that were exempt under CRA’s former policy. Affected partnerships will need to file a detailed calculation of the adjusted cost base (ACB) and at-risk amounts (ARA) for each partner. Since many partnerships have not calculated these amounts for individual partners in the past, doing so in time to meet filing deadlines will be an onerous task.

The CICA Tax Committee has brought these issues to CRA’s attention, and we have recommended that the CRA waive the ACB and ARA calculation requirement for 2011 returns. At a recent meeting with CRA, accounting firm and tax software representatives also raised a number of obstacles for partnerships that would affect their ability to accurately calculate partners’ ACBs.

CRA officials recognize these concerns, and have stated  it:

  • will accept returns filed by the due date if they contain the 2009 revision (used for the tax year 2010) or the 2011 version (used for tax year 2011) of schedule 50 with complete information on partner identification and the annual transactions between partners and the partnerships
  • will not impose penalties on T5013 returns for 2011 or 2012 fiscal periods as a result of incomplete ACB and ARA information on the schedule 50.

To find out more about these requirements and their implications for partnerships, read:

This document was originally prepared by a legacy CPA organization.