New filing requirements for partnerships in 2011
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On January 1, 2011, new filing criteria for the Partnership Information Return come into effect. The new filing criteria apply to partnerships (and nominee/agent for partnerships) with fiscal periods ending on or after January 1, 2011. For partnerships with fiscal periods ending on or before December 31, 2010, the current criteria still apply.
1. What is an agent\nominee?
Agent - A person authorized to act for another.
Nominee - A person designated to act for another.
These are not definitions provided by the Income Tax Act or Income Tax Regulations. They give only the common usage of the terms for the benefit of the reader.
2. I'm a nominee\agent. How does the change in the requirement to file the Partnership Information return impact me?
A. Each person who holds an interest in a partnership as a nominee or agent for another person must complete and file a separate Partnership Information Return for each composite T5013 information slip received from each partnership in which an interest is held for another person.
3. As a nominee\agent, what information must I provide to satisfy the filing requirements?
A. You must file the following prescribed forms and information with the Partnership Information Return:
- prescribed Form T5013 FIN, Partnership Financial Return;
- prescribed Form T5013 SUM, Slips Summary;
- a photocopy of the composite information slip T5013, Statement of Partnership Income, the nominee or agent received from the partnership on behalf of the investors;
- copy 1 of all the T5013 information slips issued by the nominee or agent to each person (investor) he holds an interest for;
- the completed original copy of Form T5013 SCH 50 (Schedule 50), Partners' ownership and account activity, providing information about each investor (see note below); and
- other T5013 schedules, forms or documents that apply.
You must include on Schedule 50 all the information that the partnership would otherwise provide to the CRA . The information on prescribed Form T5013 SCH 50, Partner's ownership and account activity, must match all the information provided on the composite T5013 information slip the nominee or agent received from the partnership.
4. I'm a nominee\agent. Do I require an RZ program account?
A. Yes. You must register for a 15-character RZ account number for each partnership you hold an interest in. The CRA will issue as many RZ account numbers (RZ00001, RZ0002, etc.) as the number of partnerships you hold an interest in.
The RZ account number has 15 characters in three parts; the nine-digit Business Number (BN), a two-letter program identifier, and a four-digit reference number. Each business or legal entity should have only one BN. The program identifier and the reference number identify the account.
|Business Number (BN)||Program Identifier||Reference Number|
If you require an RZ account as a nominee\agent for a partnership, you must complete the form RC257, Request for an Information Return Program Account (RZ). Send the completed RC257 and the RC1 - Request for a Business Number (BN), if required, to your nearest Tax Centre. To find the address, visit www.cra.gc.ca/contact. If you have questions visit http://www.cra.gc.ca/bn or call 1-800-959-5525.
5. My partnership has not been required to file a Partnership Information Return before. The partnership now meets one or more of the filing criteria. How do I register for an RZ program account?
If you are required to file the Partnership Information Return, you must do so using your BN with RZ Program Identifier. The RZ account number has 15 characters in three parts; the nine-digit Business Number (BN), a two-letter program identifier, and a four-digit reference number. Each business or legal entity should have only one BN. The program identifier and the reference number identify the account.
|Business Number (BN)||Program Identifier||Reference Number|
If you do not already have a Business Number (BN), go to Business Number (BN) Registration for more information. To obtain an RZ account, complete Form RC257 - Request for an Information Return Program Account (RZ) , or contact the CRA.
Note: If you are a nominee\agent for a partnership, see the registration procedures specific for nominees and agents.
6. Why is the Canada Revenue Agency (CRA) changing the partnership returns filing criteria?
In 1989, a regulation was added to the Income Tax Regulations that requires all Canadian partnerships to file an annual information return. Since that time, the CRA has provided, under certain conditions, an exemption from the filing requirement for partnerships with fewer than six partners. However, since the Canadian economy and business landscape have evolved over the last 20 years, the CRA has reviewed the conditions for a partnership filing exemption. The CRA's review showed that the amount of both business activity and assets held by a partnership, as well as the complexity of a partnership's structure, are of more significance than the number of partners.
The changes being introduced allow the CRA to focus on the complexity of partnership activities rather than the number of partners.
7. Is this a legislative change?
Legislation has always required all partnerships to file partnership information returns. To ease the burden on filers, the CRA developed an administrative policy that draws boundaries on those partnerships that have to file and those that do not have to file. Therefore, the changes to the filing criteria are administrative only. There will be no changes to the legislation.
8. What is a partnership?
The Interpretation Bulletin IT-90, What is a Partnership? defines a partnership as the relation that exists between persons carrying on business in common with a view to profit.
Taxpayers can determine whether they are a partner in a partnership by examining the type and extent of their involvement in the business and checking the laws of their province or territory.
A partnership can be formed between individuals, corporations, trusts, or other partnerships, in any combination. Partnerships can be formed verbally or by a written contract.
9. How do partnership businesses differ from other types of businesses or corporations?
A corporation has a separate and distinct legal existence from its shareholders. However, a partnership does not have this type of separate and distinct legal existence from its partners.
A partnership is not treated or taxed as a separate person (as with a corporation). All income and losses are flowed out to the partners who report their share of the partnership's income on their income tax return (whether it is a T1, T2, or T3 return). As a result, a partnership does not file an income tax return, and is not taxed at the partnership level.
However, the CRA, through an administrative policy, requires certain partnerships to file the partnership information return (T5013). For more information on the current criteria for filing a partnership return, go to www.cra.gc.ca/partnership.
10. What changes are being made to the requirement to file a partnership information return?
The CRA is replacing the requirement about the number of partners in a partnership with a requirement related to financial thresholds, and clarifying the requirements for the types of partners.
Effective January 1, 2011, a partnership that carries on a business in Canada, or a Canadian partnership with Canadian or foreign operations or investments, has to file a T5013 for each fiscal period of the partnership:
- If, at the end of the fiscal period,
- the partnership has an absolute value of revenues plus an absolute value of expenses of more than $2 million, or has more than $5 million in assets; or
- If, at anytime during the fiscal period,
- the partnership is a tiered partnership (has another partnership as a partner or is itself a partner in another partnership);
- the partnership has a corporation or a trust as a partner;
- the partnership invested in flow-through shares of a principal-business corporation that incurred Canadian resource expenses and renounced those expenses to the partnership; or
- the Minister of National Revenue requests one in writing.
11. What does "an absolute value of revenues plus an absolute value of expenses" mean?
The absolute value of a number refers to the numerical value of the number without regard to its positive or negative sign. For example, "3" is the absolute value of both 3 (positive 3) and -3 (negative 3). To determine if a partnership exceeds the $2 million threshold, add total expenses to total revenues rather than subtract expenses from revenues as you would to determine net income. For example, a partnership with revenues of $1.5 million and expenses of $1.25 million would have an absolute value of revenues plus an absolute value of expenses of $2.75 million ($1.5 million plus $1.25 million).
12. What financial details should be used to determine whether a partnership meets the "absolute value of revenues plus an absolute value of expenses of more than $2 million" criterion?
The revenues and expenses details come from the financial statement amounts. "Revenues" refers to revenues that have not been netted. For example, you would not use gross profit to represent "revenues" since gross profit is revenues minus the cost of goods sold. Expenses include both current costs and capital costs (e.g. depreciation). Revenues from all sources (revenues that have not been netted) are added to the total of all expenses (expenses are expressed as a positive number), and the total is used to determine whether or not the criterion has been met.
|Cost of goods sold||850,000|
|Absolute value of revenues||$1,500,000|
|Absolute value of expenses|
|- Cost of goods sold||$850,000|
|Absolute value of revenues plus expenses||$2,750,000|
This partnership would have to file since the absolute value of revenues plus the absolute value of expenses is more than $2,000,000.
13. How does the CRA determine whether a partnership has "more than $5 million in assets"?
The cost figure of all assets, both tangible and intangible, without taking into account the depreciated amount should be used to determine whether a partnership meets the "more than $5 million in assets" criterion.
14. Will there be any changes to the partnership information return itself?
The return is currently being updated for the 2011 tax year and will be available at a later date. Go to www.cra.gc.ca/partnership when it is time to get ready to file the 2011 partnership information return for information about the forms you will need to file.
15. Where can businesses get more information?
For more information please contact the Business Enquiries line at 1-800-959-5525.
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