Preparing Your Partnership Returns
Wolters Kluwer is pleased to introduce a fourth book in the trusted Preparing Your Tax Returns series. The latest addition is Preparing Your Partnership Returns. It includes detailed guidance on partnership return preparation, and includes software guidance in context. The below excerpt is from the first edition of the upcoming book. If you wish to order this book in print or online on IntelliConnect, please visit http://www.cch.ca/product.aspx?WebID=10001233 or call customer service at 1-800-268-4522.
General Filing Information
When Must a Partnership File a T5013?
All partnerships that carry on business in Canada or are Canadian partnerships or specified investment flow-through (“SIFT”) partnerships must, by regulation, file a partnership information return. However, under CRA administrative policy, certain partnerships that carry on business in Canada or are Canadian partnerships are not required to file a partnership information return.
A partnership that carries on a business in Canada, or a Canadian partnership with Canadian or foreign operations or investments, must file a return 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 $2 million, or has more than $5 million in assets; or
- at any time during the fiscal period:
- the partnership is a tiered partnership (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 Minister of National Revenue requests one in writing.
Software Tip—Taxprep Forms, Cantax FormMaster
The software will automatically determine that a T5013 Financial return is required when one of the following criteria is met:
- at the end of the fiscal period,
- the combined absolute value of the partnership’s revenue and expenditures (Schedule 125, items 8299 and 9369 or items 9659 and 9898) is more than $2 million; or
- the partnership has assets of more than $5 million (Schedule 100, item 2599);
- at any time in the fiscal period,
- the partnership is a tiered partnership (it has another partnership among its partners (T5013 Schedule 50, box 105);
- the partnership itself is associated with another partnership (T5013 Schedule 5, Part 2));
- the partnership has among its partners a corporation or a trust (T5013 Schedule 50, box 105); or
- the partnership acquired flow-through shares from a principal-business corporation that incurred expenditures relating to Canadian resources and renounced those expenditures in favour of the partnership (T5013 Financial, box 252);
- the partnership has been inactive throughout the fiscal period (T5013 Financial, box 280); or
- one or more T5013 slips are applicable and either box 062-01 or 062-02 on the T5013 Financial Return is selected.
If you wish to file a T5013 Financial return even though the program has not determined that one is applicable, you can override the question “Select this form if you want to file the T5013 Financial form” just above the Identification section.
When all members of a partnership are status Indians, and the partnership earns all its income at its permanent establishment on a reserve, the partnership does not have to file a return.
If the partnership has any income earned off the reserve and the income is not exempt from tax, the partnership may have to file a return. To determine if you need to file a return, go to canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/T5013-partnership-information-return-filing-requirements.html.
Filing a T5013 When Not Required
In some cases, it may be beneficial to file a T5013 return even if the partnership is not required to file according to the current administrative policy, so that the clock will start ticking on the determination period. Otherwise, the partners could be open for reassessment indefinitely with respect to their income or loss from the partnership under paragraph 152(1.7)(b).
Reporting Partnership Income When No T5013 Issued
If the partnership does not have to file a return, the partners have to use the information from the partnership’s financial statements to report their share of the partnership’s income or loss on their income tax return.
Partners who are Individuals would report the revenue and expenses for the partnership in their T1 return using the appropriate self-employment form (e.g., form T2125 Statement of Business or Professional Activities or T2042 Statement of Farming Activities) or, in the case of a partnership holding rental property, on form T776 Statement of Real Estate Rentals.
Responsibility for Filing
Once you determine that the partnership has to file a return, each member of the partnership is responsible for making sure that a return is filed for each fiscal period of the partnership.
You need to file only one return for each fiscal period of the partnership. Any partner can file on behalf of the other partners. The partner who is filing the return on behalf of all the members of the partnership is the authorized partner. Once a partner files a return, the CRA considers all partners to have filed it.
Reporting in Canadian funds
Report your financial statement information in Canadian funds even if you are a Canadian branch of a foreign partnership.
When a corporate member of the partnership has elected to report in a functional currency, the partnership has to use the same functional currency when preparing the information slip for this corporate partner.
If a partnership has one member who has elected a functional currency and another who has not, or has elected another functional currency, the partnership is required to prepare the T5013 information slip, Statement of Partnership Income, for the partners who made an election under section 261 of the Income Tax Act (the “Act”) in their elected functional currency.
Software Tip—Taxprep Forms, Cantax FormMaster, iFirm Tax Forms
If the partner has made an election under section 261 to use a functional currency, you can indicate this on the T5013 Data Entry screen for that partner, and a note will be generated automatically on the T5013 slip. However, the program will not perform any currency translations.
Note that if only certain partners have made an election under section 261 to use a functional currency or if there are partners that have elected to use different functional currencies, you will need to manually input the converted amounts (in some cases via an override) on the T5013 data entry screen for those specific partners.
What to File
The partnership return is technically an information return only. It is not an income tax return, and tax is not paid at the partnership level. However, the CRA has the authority to assess partnership returns and issue a determination of income or loss for the partnership as a whole, the consequences of which will be binding on the partners even if they are not personally served with the notice.
The partnership information return is composed of three parts:
- T5013 FIN, Partnership Financial Return, which is a four-page form;
- All the T5013 schedules the partnership has to file, depending on the partnership’s fiscal situation; and
- Form T5013, Statement of Partnership Income, as well as form T5013SUM, Summary of Partnership Income.
Nominees and Agents
For fiscal periods ending in 2013 and later years, nominees or agents only have to complete forms T5013SUM, Summary of Partnership Income, and T5013, Statement of Partnership Income, for each partnership in which they held an interest for another person. They are not required to file forms T5013 FIN, Partnership Financial Return, and T5013 SCH 50, Partner’s Ownership and Account Activity.
The Partnership Information Return includes many schedules that have been adapted from the T2, Corporation Income Tax Return.
Schedules relating to the T5013 FIN, Partnership Financial Return include the following:
- T5013 SCH 1, Partnership’s Net Income (Loss) for Income Tax Purposes (see Chapter 4);
- T5013 SCH 2, Charitable Donations, Gifts, and Political Contributions (see Chapter 5);
- T5013 SCH 5, Allocation of Salaries and Wages, and Gross Revenue for Multiple Jurisdictions (see Chapter 5);
- T5013 SCH 6, Summary of Dispositions of Capital Property (see Chapter 6);
- T5013 SCH 8, Capital Cost Allowance (CCA) (see Chapter 7);
- T5013 SCH 9, List of Partnerships (see Chapter 9);
- T5013 SCH 12, Resource-Related Deductions (see Chapter 8);
- T5013 SCH 50, Partner’s Ownership and Account Activity (see Chapter 9);
- T5013 SCH 52, Summary Information for Partnerships that Allocated Renounced Resource Expenses to their Members (see Chapter 8);
- T5013 SCH 100, Balance Sheet Information (see ¶3,130.10 on SCH 100);
- T5013 SCH 125, Income Statement Information (see ¶3,130.10 on SCH 100);
- T5013 SCH 141, Financial Statement Notes Checklist (see ¶3,130.10 on SCH 100).
The forms T5013FIN, SCH 1, SCH 50, SCH 100, SCH 125, SCH 140 (if applicable), and SCH 141, as well as T5013 slips and T5013SUM, are the mandatory forms. However, SCH 141 is not mandatory for investment clubs.
Software Tip—Taxprep Forms, Cantax FormMaster
As the program contains many other forms and slips in addition to the T5013, you may wish to view only the partnership forms when preparing your T5013 return and slips.
By default, the Current View in the Form Manager displays All Forms. However, a predefined form group has been provided which includes only forms relating to partnership returns. This form group selection will be retained and automatically used the next time you start the program.
Alternatively, you can also filter on the Type column in the Form Manager and choose “Partnerships”. However, this filter does not include forms that can relate to other information returns, like the Identification form.
In addition, you can create your own custom group of forms that includes the T5013 schedules as well as any additional forms you require (e.g., T661, T1134, T106). For more information on creating a custom group of forms, see the topic “Create a group” in the online help.