The facts are stated to be those in 15 December 2016 Interpretation 167342. A corporation is the sole holder of Class B Units of a limited partnership holding investments. Such Class B Limited Partner has no employees and does not perform any services or take any part in the management or control of the business or affairs of the Partnership in its role as the Class B Limited Partner. The general partner appoints a manager to provide management and administration services to the Partnership. Some individuals who are shareholders or employees of the Manager are also shareholders of the Class B Limited Partner.
Partnership “Distributions” are made first as “Priority Distributions” to the holders of Class B Units and Class C Units in proportion to their respective Units until such Units have received all accrued Priority Distributions and, as to the balance, X% to the general partner and the balance to the limited partners in proportion to their ownership of Class A Units.
After ruling that the payment of a Distribution by the Partnership to a Partner is an exempt supply of a financial service (and noting that the ruling did not address amendments to s. 272.1), CRA stated:
Generally, when a partnership pays an amount of money to a member of a partnership with respect to the member's interest in the partnership, such as a distribution, the partnership is paying money in respect of a financial instrument, which is a financial service under paragraph (f) of the definition of "financial service" in subsection 123(1).
Accordingly, the Distributions, as payments of money in respect of the Partners' interests in the Limited Partnership, are financial services under paragraph (f) … . When the Partnership provides the payment of a Distribution to a Partner, the Partnership is making … an exempt supply … unless the supply is zero-rated … .
