2011 Federal Budget—Partnerships—Deferral of Corporate Tax

The federal Budget tabled on June 6, 2011 included no changes to the income tax measures originally announced in the Budget on March 22, 2011.

The Budget proposes some changes that will have significant consequences to any corporation that carries on business through a partnership (or multiple tiers of partnerships) where the partnership does not have the same fiscal period of the corporation. These structures are fairly common and have the potential to generate significant tax deferral for a corporate partner. In the Budget materials, Finance has indicated that, in its view, corporations are increasingly establishing partnership structures with misaligned fiscal periods for the “primary purpose of deferring taxes”. The response is swift and severe. Subject to certain transitional rules, the Budget proposes to eliminate completely the tax deferral opportunities for a corporate partner that holds a “significant interest” in a partnership effective for taxation years of corporate partners that end after March 22, 2011.


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