Tax Tip[] Partnerships

New Filing Requirements for Partnerships

“Partnerships that never filed before may now have to.”

The Income Tax Act requires all partnerships to file an annual information return in prescribed form (currently Form T5013). One partner can file a partnership return on behalf of the partnership and its partners.

Administratively, it has been the CRA’s policy that most partnerships with fewer than six partners need not file an annual information return. On September 17, 2010, the CRA announced a change to this administrative exemption that will be effective for partnership years ending on or after January 1, 2011.

The new administrative policy requires an annual information return (still Form T5013) to be filed by a partnership that carries on a business in Canada, or a Canadian partnership with Canadian or foreign operations or investments if:

  1. at the end of the fiscal period, the partnership

    a. has an absolute value of revenues plus an absolute value of expenses of more than $2 million; or

    b. has more than $5 million in assets

OR

  1. at anytime during the fiscal period, the partnership

    a. is a tiered partnership (has another partnership as a partner or is itself a partner in another partnership);

    b. has a corporation or a trust as a partner;

    c. invested in flow-through shares; or

    d. is requested to file a return by the Minister.

The “absolute value of revenues plus absolute value of expenses” means total revenues PLUS total expenses from the partnership’s financial statements (not revenue minus expenses). For example, a partnership with gross revenue of $1 million and cost of goods sold of $500,000 and total expenses of $1.25 million would have an absolute value of revenues plus an absolute value of expenses of $2.75 million (1 million plus 500,000 plus 1.25 million) and would be required to file a return.

In addition, “assets” means the cost of all tangible and intangible assets, without taking into account the depreciation.

This means that the partnerships that never filed before may now have to file a return if they meet the new requirements or have a corporation or a trust as a partner. Partnerships, where all the partners are individuals, will not have to file a return (even if there are more than five partners) unless its revenues plus expenses are $2 million or more, or its gross assets exceed $5 million.

The CRA is also in the process of updating the partnership information return for the 2011 tax year, so more reporting changes may be forthcoming.

While a partnership may not be required to file an annual information return, as addressed in Tax Tip 04-09, there may be benefits to filing the return. In particular, filing an annual information return may limit the period during which the CRA could recalculate the partnership’s income.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.

A Return to Partnerships

“Start the clock ticking by filing a T5013.”

Partnerships do not pay income tax. The individual partners report, and pay tax on, their share of the partnership’s income each year.

Most partnerships with six or more partners are required to file an annual“Partnership Information Return” (Form T5013). This form reports the partnership’s income or loss, which is then allocated to the partners for tax purposes.

Form T5013 need not be filed for a partnership with five or fewer partners (Information Circular 89-5R). Each partner is still required to report the income on the appropriate year’s personal, corporate or trust tax return, as the case may be, but the partnership return need not be filed.

Under subsection 152(1.4) of the Income Tax Act, the Canada Revenue Agency can issue a “Notice of Determination” of a partnership’s income. This determination isbinding on all partners, and can only be objected to by one partner, representing the entire partnership.

If the T5013 partnership information return is not filed, the CRA takes the view that it can issue this Notice of Determination at any time, and then use that as the basis for assessing a partner’s income. The normal three-year deadline which prevents the CRA from reassessing indefinitely will only start running from the date the T5013 is filed.

Therefore, even partners who do not have to file the T5013 (such as for partnerships with five or fewer partners) should consider filing it, to ensure that the clock starts running to prevent a reassessment many years down the road.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.

Partnerships – Not Statute-Barred If No T5013 Filed

“Filing a Partnership Return
Ensures Partnership Income becomes
Statute-Barred.”

A Canadian partnership is required to file an annual T5013 Partnership Information Return.

Under Canada Revenue Agency’s administrative policy, certain partnerships are not required to file this return, including: (a) partnerships with five or fewer members throughout the fiscal period where no member is another partnership; (b) certain limited partnerships whose only activity is investment in flow-through shares; and (c) partnerships whose members are all status Indians whose income from the partnership is exempt under the Indian Act.

The time period for assessment is within three years from the later of the day a partnership return is required to be filed and the day the return is filed.

If no partnership return is filed, then the CCRA could take the position that the partnership information is never statute-barred. This means that CCRA could re-assess partnership information after the usual three-year period.

Accordingly, where no partnership return is required, it is still advisable for partnerships to file a return as filing starts the limitation period and may protect partners from a potentially unlimited reassessment period.


TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.