Please note that the following document, although correct at the time of issue, may not represent the current position of the Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence.
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Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 15th floor
320 Queen Street
Ottawa ON K1A 0L5
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Case Number: 57840
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XXXXX
XXXXX
XXXXX
XXXXX
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June 30, 2005
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Subject:
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GST/HST INTERPRETATION
Supplies to Partnership
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Dear XXXXX,
Thank you for your letter XXXXX concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to partnership operations.
Interpretation Requested
You outline a hypothetical fact scenario as reproduced below:
1. A limited partnership (the "Partnership") will be formed for the purpose of investing in mutual funds.
2. The units in the Partnership are divided into Class A and Class B units.
3. Pursuant to the Partnership agreement, a corporation serves as general partner and will manage the Partnership. The general partner has no other activity other than the management of the Partnership. It can be assumed that the only activities undertaken by the general partner are those that it is authorized to perform pursuant to the Partnership agreement.
4. The limited partners hold Class A units while the general partner holds all Class B units.
5. Pursuant to the Partnership agreement, the holder of the Class B units is entitled to receive an allocation from the Partnership that is made up of two components (1) an amount which varies according to the profits and losses of the Partnership (i.e. the amount can be positive or negative) and (2) an amount equal to a set percentage (e.g. 2%) of the net value of the assets of the Partnership.
6. The holders of the Class A units are entitled to a return proportionate to the profit or loss of the Partnership.
You wish to know our general views on whether or not the general partner would be considered to be making a supply of services to the partnership in this scenario, specifically with regard to partner remuneration as outlined in point 5 above.
Interpretation Given
Based on the limited information provided, we can only provide the following general comments regarding our interpretation of section 272.1 of the Excise Tax Act as it applies to your question.
As discussed in policy statement P-244, a number of factors must be considered to determine whether section 272.1(1) applies in a particular situation. One of the factors is whether the general partner is clearly responsible for taking the action under the partnership agreement. Other factors include whether the general partner receives separate consideration for a property or service provided under the partnership agreement and whether the partner is engaged in a separate business.
Where a corporate general partner of a limited partnership receives a fixed fee (for example, a percentage of the net value of partnership assets) for services it provides to the partnership, generally the amount is remuneration for services provided by the partner on its own account and not for something done as a member of the partnership even if the agreement to provide the services is included in the partnership agreement. Where a partner supplies services to a partnership otherwise than in the course of the partnership's activities subsection 272.1(3) applies.
Where the property or service is not for consumption, use or supply exclusively in the course of commercial activities of the partnership, paragraph 272.1(3)(b) provides that the consideration is deemed to be equal to the fair market value of the property or service that is so acquired by the partnership at the time the supply is made. The fair market value is determined as though the partner was not a member of the partnership and the partner and partnership were dealing at arm's length.
The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.
Yours truly,
Larry Springstead
Corporate Reorganizations Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
2005/08/30 — RITS 58143 — Direct Sellers - Sales Aids
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