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: Can proposed transaction preserve "excluded interest " status in a partnership?
Position: Question of Fact
Reasons: Require full review
XXXXXXXXXX 991060
S. Tevlin
Attention: XXXXXXXXXX
December 24, 1999
Dear Sirs:
Re: Subsection 40(3.15) of the Income Tax Act (the "Act")
We are writing in response to your letter dated March 22, 1999 wherein you requested our comments on the application of subsection 40(3.15) of the Act to a hypothetical situation. In particular you describe a scenario where in order to preserve "excluded interest" status in a partnership, a new form of business organization is put in place.
Rather than expand the business of a partnership through an increase of the indebtedness of the partnership or by having the partners make a contribution of capital to the partnership, a new corporation ("Newco") is formed by the parent of the existing corporate partners. Newco will enter into a royalty licencing arrangement with the partnership to the extent that Newco requires the use of the partnership's technology or formulas. Newco will carry on business and will lease or sublease certain properties on arm's length commercial terms from the partnership.
It is your opinion that this structure would not offend the existing subsection 40(3.15) exclusion for the current partners since the partnership continues to carry on the same business that has been carried on since February 22, 1994.
Whether it can be said that the partnership is still actively carrying on the business that was carried on by it throughout the period beginning February 22, 1994, is a question of fact that could only be determined after a complete review of the partnership operations subsequent to the reorganization.
Although the Directorate provides technical interpretations of the law, we do not provide opinions on the application of subsection 245(2) of the Act to a particular situation.
Whether the Canada Customs and Revenue Agency considers a transaction to be an avoidance transaction can only be confirmed in the context of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3 dated December 30, 1996.
Yours truly,
Paul Lynch
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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