23 June 1995 External T.I. 9500195 - RESERVE

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 a joint venture can take a reasonable reserve where it sells land to a partnership whose members are the same.

Position TAKEN:

Unable to give definite answer

Reasons FOR POSITION TAKEN:

Not sufficient information given

		5-950019
XXXXXXXXXX	M. Shea-DesRosiers

Attention: XXXXXXXXXX

June 23, 1995

Dear Sirs:

Re: Paragraph 20(1)(n) of the Income Tax Act (the "Act")

This is in reply to your letter of December 22, 1994 concerning the above-mentioned subject. We apologize for the delay in replying to your letter.

Written confirmation of the tax implications inherent in particular proposed transactions are given by this Directorate only where the transactions are outlined in an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. Questions concerning actual fact situations should otherwise be directed to your district tax services office. Although we cannot provide a specific answer to your query, we offer the following general comments which are not binding on the Department

It is a question of fact whether a joint venture (e.g. each of the joint venturers) can take a reasonable reserve under paragraph 20(1)(n) of the Act where it sells land to a partnership whose partners are also members of the joint venture and takes a note back for the proceeds of the sale.

If the transaction is conducted as if the parties dealt at arm's length, and the provisions of paragraph 20(1)(n) of the Act are met, a reasonable reserve could be deducted. However without having been given all the facts, it is not possible to advise whether a reserve would be allowed in the situation you raise. Among others, subsections 96(1), 97(1) and (2) of the Act would need to be addressed before an answer can be given. We regret but as presented we are unable to give a more definite opinion to your request.

Yours truly,

for Director
Financing, Leasing and Plans Section
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate