Partnership Information Return (Form T5013)

Unlike a corporation, a partnership does not have a separate and distinct legal existence from its partners. Thus, under the Income Tax Act (the Act), a partnership is not treated or taxed as a separate person. Rather, all income and losses are flowed out to the partners who report their share of the partnership’s income on their tax returns (whether it be a T1 (personal), T2 (corporate), or T3 (trust) return).

Although a partnership does not file a tax return and is not taxed at the partnership level, the Act requires a partnership to file an information return; Form T5013: Partnership Information Return. In particular, Form T5013 is required to be filed by each member of a partnership that carries on a business in Canada, or that is a “Canadian partnership”, at any time in the partnership’s fiscal period. Form T5013 contains information such as the income or loss of the partnership, the names of partners, their shares of income or loss of the partnership, etc.

The T5013 return can be filed electronically through the CRA’s My Business Account service. The return may be filed by any one member of the partnership, in which case the return is deemed to have been filed by each member.

It is a question of fact whether or not a particular partnership is carrying on business in Canada. The threshold for being considered to be carrying on business in Canada is, however, very low. A “Canadian partnership” means a partnership all of the members of which were, at any time in respect of which the expression is relevant, resident in Canada.

The partnership return filing-due date is March 31^st after the calendar year in which the fiscal period of the partnership ended if throughout the fiscal period all partners are individuals, including end members of a tiered partnership, and investment clubs that file on the modified-partnership basis (a trust is considered an individual for this purpose). The partnership is required to mail the recipients’ copies of the T5013 slips, deliver them in person, or send them electronically no later than the day you have to file the return.

Administrative Filing Exception

Although the Act requires a partnership return to be filed in the circumstances described above, as an administrative concession, the CRA does not require certain partnerships to file a return.

Under the CRA’s administrative policy, a partnership that carries on a business in Canada, or a Canadian partnership with Canadian or foreign operations or investments, is only required to file a T5013 return for a fiscal period of the partnership:

1) 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 $2M, or has more than $5M in assets; or

2) If, at anytime during the fiscal period

• the partnership is a tiered partnership (i.e. 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 CRA requests a T5013 be filed in writing.

Regarding (1) above, the absolute value of a number refers to the numerical value of the number without regard to its positive or negative sign. For example, “25,000” is the absolute value of both 25,000 (positive 25,000) and -25,000 (negative 25,000). To determine if a partnership exceeds the $2M threshold, add total expenses to total revenues, rather than subtract expenses from revenues as you would to compute net income. For example, a partnership with revenues of $1.3M and expenses of $1.1M would have an absolute value of revenues plus an absolute value of expenses of $2.4M. Revenue and expenses for purposes of applying this test are based on details reported in the partnership’s financial statements for accounting purposes. “Revenues” refers to revenues that have not been netted. For example, you would not use gross profit to represent “revenues” since gross profit is equal to revenues minus the cost of goods sold. “Expenses” for this purpose includes both current costs and notional costs (e.g. depreciation). Revenues from all sources (that have not been netted) are added to the total of all expenses (expressed as a positive number), and the total is used to determine whether or not the criterion has been met.

Example

This partnership would be required to file since the absolute value of revenues plus the absolute value of expenses is more than $2M.

To determine whether a partnership has more than $5M in assets, the cost figure of all assets, both tangible and intangible, without taking into account depreciation, should be used.

There are certain exceptions to being exempt from filing a partnership return under the CRA’s policy. For example, every person who holds an interest in a partnership as a nominee or agent for another person has to fill out and file with the CRA a separate Form T5013SUM and the related T5013 slips for each partnership in which an interest is held for another person.

Other Filing Requirements

Even if a partnership is exempt from filing a T5013 return under the above administrative policy, other filing requirements may still apply to the partnership. For example, foreign reporting forms such as Form T1135: Foreign Income Verification Statement, T1134: Information Return Relating to Controlled and Non-Controlled Foreign Affiliates or NR4: Statement of Amounts Paid or Credited to Non-Residents of Canada may have to be filed. Also, if the partnership has incurred qualifying SR&ED expenditures during the fiscal period, the partnership should file Form T661: Scientific Research and Experimental Development (SR&ED) Expenditures Claim.

Partnership Income CRA Assessments/Reassessments

Even if the partnership of which you are a member is exempt from filing a T5013 return under the CRA’s administrative policy, it is often advisable to nonetheless file the return since the CRA has taken the position that a fiscal period of a partnership that does not file a T5013 return will never become statute-barred from reassessment. In cases where a partnership return has been filed, generally, the CRA is authorized to determine (i.e. assess) any income or loss of the partnership for the fiscal period within three years after the later of the day on which the T5013 return for the fiscal period was required to be filed and the day on which the return was actually filed (there is no time limit if the return contains a misrepresentation due to carelessness or neglect). During the three-year period, the CRA is further permitted to determine any deduction, amount or matter at the partnership level or relating to the partnership and that is considered relevant in determining the tax liability of, and various amounts payable by, or refundable to, the members of the partnership under the Act.

Partner Assessments

The CRA takes the position that if the time to issue a partnership determination has expired, it can still directly assess the partners if their returns are not yet statute-barred from reassessment. The CRA has also indicated that it may reassess a partner’s tax return, upon a request by the partner, to reflect an amended T5013 partnership return that is filed beyond the determination period outlined above, provided that the taxation year of the partner is not statute-barred. The CRA may also accept a request to amend a partner’s tax return in respect of a statute-barred taxation year to reflect an amended T5013 partnership return if accepting the request would not result in a change to the taxes payable by the partner in respect of the statute-barred taxation year.

Late-Filing Penalties

If you late-file a T5013 return that was not required to be filed under the CRA’s administrative policy, the CRA has stated it will not assess a late-filing penalty. In the case of a return that was required to be filed, the following penalties can apply:

• Partnership: If a T5013 return, or any part of it, is filed late, the partnership is subject to a penalty for each failure to file on time. The CRA considers the return filed on time if the CRA receives it or it is postmarked on or before the due date. The penalty is $25 per day, from a minimum of $100 to a maximum of $2,500. The penalty is applicable separately on each mandatory form being part of the return, including each of the slips.
• Partners and partnership —Every partner (including a nominee or agent who holds an interest in the partnership for another person) or partnership who fails to file an information return as and when required or fails to comply with a duty or obligation imposed by the Act or the Regulations (including distributing any slips late to the recipients), is liable to a penalty for each failure. Generally, the penalty for each failure is $25 per day, with a minimum penalty of $100 and a maximum of $2,500. The penalty increases if there was a repeated failure to file.

A partnership may also be subject to a penalty for a failure to file an information return reporting foreign property, foreign affiliates, non-arm’s length transactions with non-residents, or distributions from and indebtedness to a non-resident trust. Also, where applicable, a significant penalty may be imposed if T5013SCH52:  Summary Information for Partnerships that Allocated Renounced Resource Expenses to their Members, is filed late.

Please call if you would like to further discuss whether the partnership of which you are a member must, or should, file a partnership information return. Also, we can cover any other questions you may have regarding the special flow-through treatment of partnerships under the Act.