Rules for joint ventures

For many years, the CRA administratively permitted a joint venture (JV) to have a fiscal period that was different from the fiscal periods of the JV participants. This policy allowed a JV participant to realize a tax deferral similar to that enjoyed by corporate partners of a partnership. The differences between a JV and a partnership are discussed in topic 133.

Due to the rules to limit the tax deferral opportunities for certain corporate partners (discussed above), the CRA announced that for taxation years ending after March 22, 2011, JV participants would also no longer be able to compute income as if the JV had a separate fiscal period. Instead, income from a JV will have to be calculated for each JV participant based on the fiscal period of the particular JV participant. Similar to the rules for partnerships, transitional relief is available to spread the additional income for the stub period over a five-year period—i.e., 15% in 2012, 20% in each of 2013, 2014 and 2015, and 25% in 2016.

Example: Assume a JV had a fiscal period ending June 30 and XYZ Co., one of the JV participants, has a December 31 year-end. The JV’s actual amount of its additional income for the period July 1, 2011 to December 31, 2011 was $200,000. Assuming a maximum reserve is claimed each year, the following additional amounts will have to be included in XYZ Co.’s income for its fiscal periods ending in 2012 to 2016:

  • 2012      $30,000
  • 2013      $40,000
  • 2014      $40,000
  • 2015      $40,000
  • 2016      $50,000

A JV participant who wanted to benefit from this transitional relief for the first taxation year ending after March 22, 2011, had to file an election in writing with the CRA, by no later than September 22, 2012. If the election was not filed, the entire amount of the stub period income had to be included in income for the JV participant’s first taxation year ending after March 22, 2011.