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:
Paragraph (h) of the definition for CEE in 66.1(6) does not include a reference to an amount renounced to the partnership under 66(12.601). As a result the expense attributed to the partners may be CDE and not CEE.
Position TAKEN:
An amount deemed to by CEE under 66(12.61) as a result of it being renounced under 66(12.601) will be considered to be CEE incurred by the partner on the last day of the partnership fiscal period.
Reasons FOR POSITION TAKEN:
Finance confirmed that the intent is that the CEE character attributed to the amount renounced under 66(12.601) should attribute to the partners of the partnership holding flow-through shares.
This interpretation is consistent with 66(18), 66(12.61), 66(12.69), 66(12.67) and CEE definition in 66.1(6).
5-950675
XXXXXXXXXX B. Rankin
(613) 957-8974
Attention: XXXXXXXXXX
October 24, 1995
Dear Sirs:
Re: Canadian Development Expense and Subsection 66(12.601) of the Income Tax Act
This is in reply to your letter of March 9, 1995, wherein you requested our views concerning Canadian development expense ("CDE") that is renounced, under subsection 66(12.601) of the Income Tax Act (the "Act"), by a corporation that is a principal-business corporation to a limited partnership that owns flow-through shares.
We note from your description of the facts that the matter in all probability relates to a completed transaction. When a requested interpretation relates to a completed transaction, it should be referred to the taxpayer's local tax services office for their consideration. However, we can provide you with the following general comments which may be of assistance to you. Our comments, however, should not be construed as confirming the income tax effects of your particular situation.
Subsections 66(12.601) and (12.602) of the Act permit a principal-business corporation to renounce specified CDE that it incurs to a person who acquires flow-through shares issued by the corporation. Where an amount is renounced to the flow-through shareholder under subsection 66(12.601) of the Act, subsection 66(12.61) of the Act provides that the flow-through shareholder is deemed to have incurred Canadian exploration expense ("CEE") rather than CDE. Thus, under subsection 66(12.61) of the Act, the flow-through shareholder would be deemed to have incurred CEE, on the effective date of the renunciation, equal to the amount of specified CDE that was renounced.
Pursuant to subsection 66(16) of the Act, for the purposes of subsections 66(12.6) to 12.66) of the Act, a limited partnership holding flow-through shares is deemed to be a person. Accordingly, under subsection 66(18) of the Act, CEE that is incurred by the partnership during it's fiscal year would be deemed to have been incurred by the partner at the end of the partnership fiscal year for the purpose of section 66.1 of the Act and paragraph (h) of the definition for CEE in subsection 66.1(6) of the Act.
Subject to the provisions of subsections 66(12.69) to 66(12.701) of the Act, by virtue of subsections 66(12.601) and 66(12.61) of the Act, specified CDE which is renounced by the corporation to the limited partnership effective on the last day of the limited partnership's fiscal year would be deemed to be CEE incurred by the limited partnership on that day.
For the purpose of renouncing CDE to the limited partnership under 66(12.601) of the Act, the corporation will be subject to the conditions and limitations provided in subsection 66(12.602) of the Act. That is, under 66(12.602)(c) of the Act, the corporation is permitted to renounce up to $2 million of CDE it incurs in any one calendar year.
The foregoing comments represent our general views on the subject matter. As indicated in paragraph 21 of Information Circular 70-6R2, the above comments do not constitute an advance income tax ruling and accordingly are not binding on Revenue Canada.
Yours truly,
for Director
Manufacturing Industries,
Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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