Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether any entity in the structure described in the letter needs to file an information return under the foreign reporting requirement rules and, if yes, which entity
Position: Yes, subsection 233.3 would apply to the partnership which holds the foreign real property
Reasons: Because it is a specified Canadian entity
XXXXXXXXXX 1999-000969
S. Leung
Attention: XXXXXXXXXX
July 19, 2000
Dear Sirs:
Re: Foreign Reporting Requirements
We are writing in reply to your letter in which you requested our opinion as to whether the foreign reporting requirements apply to any of the entities described in the ownership structure below and, if the answer is affirmative, to which of these entities.
Ownership Structure
1. A Canadian limited partnership ("ABC") is owned 99.99% by various Canadian resident limited partners who are all individuals and 0.01% by a Canadian resident corporate partner who is the general partner of the partnership.
2. ABC in turns owns a 99.99% interest in a U.S. partnership ("USP#1"). A U.S. corporation ("USco1") which is the general partner of USP#1 owns the remaining 0.01% interest.
3. USP#1 in turn owns a 99% interest in another U.S. partnership ("USP#2"). Another U.S. corporation ("USco2") which is the general partner of USP#2 owns the remaining 1%. The interest in USP#2 is the only property owned by USP#1.
4. USP#2 holds real property outside Canada which is used to earn rental income. The cost amount of the real property to USP#2 exceeds $100,000 in Canadian currency.
5. Neither USP#1 nor ABC has any holding in the real property. Their only holdings are their respective percentage interests in the limited partnership directly below them.
The situation outlined in your letter appears to relate to an actual situation involving identifiable taxpayers. Accordingly, the applicable Tax Services Office should be consulted with respect to the obligations of the relevant taxpayers under the Income Tax Act (the "Act"). However, we can offer the following general comments.
In our opinion, section 233.3 of the Act would apply and USP#2 is the reporting entity within the meaning assigned under subsection 233.3(1) of the Act. This is because USP#2 is a partnership referred to in (b) of the definition of "specified Canadian entity" under subsection 233.3(1) of the Act as the total amount of the non-resident members' income or loss of the partnership is less than 90% of all the income or loss of the partnership. In this regard, the non-resident members of USP#2 are USco1 and USco2 pursuant to subsection 233.3(2) of the Act. In this case USP#1 would not be a reporting entity as it does not own any specified foreign property by virtue of the exception in (o) of the definition of "specified foreign property" under subsection 233.3(1) of the Act.
If USP#2 fails to file the required Form 1135 Foreign Income Verification Statement either knowingly or otherwise, or if it fails to file within the time referred to in subsection 233.3(3) of the Act, or if it knowingly or under circumstances amounting to gross negligence makes or participates in, assents to or acquiesces in, the making of a false statement or omission in a return, the applicable penalty provisions under subsections 162(7), 162(10), 162(10.1) and 163(2.4) of the Act may apply.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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