A preferred/common unit structure in a Canadian partnership holding foreign affiliates can result in the loss of s. 113 deductions to the Canadian corporate partners
Although s. 93.1 provides a look through rule where Canadian corporations hold significant indirect interests in foreign corporations “through” a partnership, their ability under s. 93.1(2) to claim a deduction under s. 113(1) (e.g., for an exempt surplus distribution) is based on the relative fair market value of their partnership interest rather than the share of the dividend that in fact is distributed to them under the terms of the partnership agreement. This can result in a portion of the dividend not being deductible under s. 113 where the Canadian corporations hold units with differing dividend-sharing attributes, e.g., where the partnership has preferred and common units.
Neal Armstrong. Summary of Karthika Ariyakumaran and Michael Spinelli, "Holding a Foreign Affiliate Through a Partnership," Canadian Tax Focus (Canadian Tax Foundation), Vol. 8, No. 1, February 2018, p.14 under s. 93.1(1).