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 units of XXXXXXXXXX Partnership are not foreign property.
Position: Do not know.
Reasons: We would need more information; however, we can provide general rules.
XXXXXXXXXX 5-982652
Fouad Daaboul
Attention: XXXXXXXXXX
December 1, 1998
Dear Sirs:
Re: Limited Partnerships and Foreign Properties
This is in reply to your facsimile submission of October 5, 1998, wherein you requested our views on the categorization of limited partnerships, such as XXXXXXXXXX , as foreign property for purposes of the Income Tax Act (the “Act”).
As indicated in Information Circular 70-6R3, confirmation of the tax consequences flowing from completed transactions must be obtained from your local tax services office. This Directorate will provide a technical interpretation concerning the provisions of the Act and Regulations but not with respect to specific factual or hypothetical transactions. We may, however, provide the following general comments concerning the provisions of the Act, in accordance with the above-mentioned Information Circular, which are not binding on the Department.
The following comments outline the rules regarding the classification of property as “foreign property” for purposes of Part XI tax in respect of certain property acquired by certain corporations or trusts governed by Deferred Income Plans by virtue of section 205 of the Act.
Under paragraph (i) of the definition of "foreign property" in subsection 206(1) of the Act, any interest in, or right to acquire an interest in, a partnership is foreign property except as prescribed by regulation. For purposes of the said definition, subsection 5000(1.1) of the Income Tax Regulations ("Regulations") provides that an interest of a limited partner in a qualified limited partnership or in a small business investment limited partnership is prescribed not to be foreign property. Thus, the interest must be owned by a limited partner, i.e. not a general partner, and the interest must be issued by an eligible partnership that is a qualified limited partnership (“QLP”), or small business investment limited partnership (“SBILP”).
Subsections 5000(7) and 5102(1) of the Regulations respectively define the meaning of QLP and SBILP. Generally, these definitions outline the required structure of the partnership as well as the investments that can be made by the partnership. Thus, an investment in Canadian business activities through a partnership will only be excluded from foreign property classification if these requirements are met.
It is our understanding that the investment broker of, the prospectus in respect of, or the owners of the partnership should have sufficient details to determine whether or not these requirements are met.
We trust our comments will be of assistance to you.
Yours truly,
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings
and Interpretations Directorate
Policy and Legislation Branch
