CRA Income Tax Filing Requirements – Requirement to File Partnership T5013 Information Return –Toronto Tax Lawyer Analysis
Introduction – Partnership T5013 Information Return
Partnerships are a form of business organization that exists when persons carry on a business in common with a view to profit. Unlike corporations, they are not separate legal entities, but instead a relationship that subsists between the persons, called partners. Under the Canadian Income Tax Act, partnerships are not treated as entities that are required to pay taxes. Instead, all of the income or losses of the partnership are allocated to the partners, who then include their share of the partnership’s income or losses in their own income and pay the appropriate amount of tax. That partnerships are not required to pay taxes does not mean that they do not have income tax filing requirements. Certain partnerships are required to file a T5013 partnership information return each year with the Canada Revenue Agency (the “CRA”). The Canadian Income Tax Act in section 162 also authorizes the CRA to apply penalties to partnerships which failed to file their T5013 information return when they were required to do so.
Requirement to File - Partnership T5013 Information Returns
The Canadian Income Tax Regulations in section 229 require that every member of a partnership must file a partnership information return for a fiscal period of the partnership when during that fiscal period the partnership carried on business in Canada, was a Canadian partnership, or was a specified investment flow-through partnership (a “SIFT partnership”). The fiscal period of a partnership is the business year of the partnership for Income Tax purposes. As with the taxation year of a corporation, the fiscal period of a partnership does not necessarily match the calendar year, and is, except in special circumstances, one year long.
A Canadian partnership is a partnership in which each partner is a resident of Canada. A SIFT partnership is a partnership which is resident in Canada, is publicly traded, and holds at least one non-portfolio property. A non-portfolio property is any property that meets at least one of the following three criteria. First, a Canadian real, immovable or resource property is a non-portfolio property if at any time in the partnership’s fiscal period, the total fair market value of all Canadian real, immovable or resource properties held by the partnership is greater than 50% of the equity value of the partnership. Second, a property that the partnership or a person or partnership that the partnership does not deal with at arm’s length uses in the course of carrying on a business in Canada is a non-portfolio property. Third, a security of a subject entity that is not a portfolio investment entity is a non-portfolio property if the partnership holds securities of the subject entity with a total fair market value greater than 10% of the equity value of the subject entity or greater than 50% of the equity value of the partnership. A subject entity is a person or partnership that is a corporation resident in Canada, a trust resident in Canada, a Canadian resident partnership, or a non-resident person or partnership whose principal source of income is one or any combination of sources in Canada. A portfolio investment entity is an entity that does not hold any non-portfolio properties. If you have questions about whether your partnership falls into one of these three categories, please consult one of our experienced Toronto tax lawyers.
The T5013 partnership information return requires members of the partnership to report to the Canada Revenue Agency the partnership’s income or loss for the fiscal period, identity information about each partner, each partner’s share of the income or loss of the partnership, and each partner’s share of any deduction, credit, or other amount relevant to determining the partner’s taxable income or tax payable under the Canadian Income Tax Act.
The deadline to file the T5013 partnership return is determined by the composition of the partnership. If a partnership has only individuals as partners, then the partnership’s information return must be filed on or before the last day of March in the calendar year immediately following the calendar year in which the partnership’s fiscal period ended. If all of the members of a partnership are corporations, then the partnership information return must be filed within 5 months of the end of the partnership’s fiscal period. For all other partnership, the earlier of the two dates mentioned above is the deadline for filing the partnership information return.
CRA Exceptions to Filing Requirement – T5013 Partnership Information Returns
The CRA’s administrative policy relieves certain partnerships of their obligation to file income tax returns. Most importantly, the Canada Revenue Agency does not require an information return to be filed for partnerships for a fiscal period if at the end of the period the sum of the absolute value of the partnership’s revenue and the absolute value of the partnership’s expenses is less than two million dollars and the partnership has less than five million dollars of assets.
Despite this administrative exemption, the CRA still requires partnerships that meet certain criteria to file information returns even if they are under the revenue/expense and asset tests mentioned above. For example, the Canada Revenue Agency requires every partnership which has a corporation or a trust as a partner to file a partnership information return. The CRA also requires all tiered partnerships to file partnership information returns. A tiered partnership is any partnership which has a partnership as a member or which is a member of a partnership. Certain partnerships which have invested in flow-through shares are also required to file an information return. In addition, if the Canada Revenue Agency requests that a partnership file a T5013 partnership information return, they are required to file the information return even if they would otherwise be exempt under the administrative policy. If you are unsure if this exemption applies to your partnership, please consult with one of our expert Toronto tax lawyers.
Failure to File Penalties – T5013Partnership Information Returns
If a partnership fails to meet its obligation to file its information return on time, it is subject to a penalty equal to the greater of $100 and $25 per day the partnership is late in filing its return up to a maximum of 100 days. Partnerships which repeatedly fail to file or fail to file on time can be subjected to higher penalties. If the CRA issued a demand to the partnership for the T5013 partnership information return or the information contained in the return and the partnership was subject to penalties for failing to file its information return on time for any of its three preceding fiscal periods, it will be subjected to increased penalties. Specifically, the partnership will be subjected to an additional penalty of $100 per month for each month or part of a month after the deadline where it has not filed its return, up to a maximum of 24 months. This leads to a maximum penalty amount of $4,900 for a single failure to file a partnership information return on time. The Canada Revenue Agency will also charge interest on these penalties.
Tax Tips – T5013Partnership Information Returns
The penalties for extended periods of non-compliance with the obligation to file a partnership information return can be very significant. This makes it important for members of a partnership to determine whether they are subject to the filing obligation. If you discover you are a member of a partnership which is not compliant with its partnership information return filing obligations, then you may be able to obtain relief through the voluntary disclosures program . The voluntary disclosures program offers relief to taxpayers who apply for relief through the program before being contacted by CRA and who meet certain other criteria. If a voluntary disclosure is accepted, then the Canada Revenue Agency will provide penalty relief and partial interest relief. If you are interested in pursuing a voluntary disclosure for your partnership, please contact one of our top Toronto tax lawyers.
There are advantages to filing a partnership information return even if your partnership is exempt from the obligation due to the CRA’s administrative policy. The Canada Revenue Agency has the power to audit partnerships and make binding determinations about the income, losses, or other tax amounts of a partnership, which then effect the tax positions of all the members of the partnership. There is however, a limitation period on the CRA’s ability to issue these determinations. The Canada Revenue Agency can only issue a determination for a fiscal period of a partnership within three years of the later of the day the partnership’s filed its partnership information return and either the partnership’s deadline for filing the information return or the day that would be the partnership’s deadline for filing the information return if it were not exempted from filing by the CRA’s administrative policy. This means that partnerships which are not required to file partnership information returns still benefit by doing so, since it starts the limitation period for the Canada Revenue Agency to issue a determination.
Written by: Ian Thomas
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."