Please note that the following document, although correct at the time of issue, may not represent the current position of the Canada Revenue Agency. / Veuillez prendre note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'Agence du revenu du Canada.
Excise and GST/HST Rulings Directorate
Place de Ville, Tower A, 11th floor
320 Queen Street
Ottawa ON K1A 0L5
[Addressee]
Case Number: 182403
Dear [Client]:
Subject: GST/HST RULING
Partnership Distributions
Thank you for your letter concerning the application of the goods and services tax/harmonized sales tax (GST/HST) to distributions made to partners, a follow up to your earlier letter to which we responded with an interpretation under Case Number 167342.
The HST applies in the participating provinces at the following rates: 13% in Ontario; and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island. The GST applies in the rest of Canada at the rate of 5%.
All legislative references are to the Excise Tax Act (ETA) unless otherwise specified.
In addition to your letter, you provided unredacted versions of two agreements provided with your request in Case Number 167342 – an amended and restated […](the Partnership Agreement), entered into on [mm/dd/yyyy], between […], as the general partner (the General Partner), and the Limited Partners (signatories to the […] Partnership Agreement) to form […] (the Partnership) and a […](the Management Agreement), entered into on [mm/dd/yyyy], between the General Partner, […](the Manager) and the Partnership. Hereafter, the General Partner and the Limited Partners are collectively referred to as “the Partners”.
STATEMENT OF FACTS
The key facts are set out in our letter issued in Case Number 167342. The unredacted documents you provided with your most recent letter provide information regarding previously redacted names and rates of payment such as the factor for determining the management fees.
RULING REQUESTED
You requested a ruling as to whether GST/HST is exigible in respect of the Distributions, that is, the amounts addressed in facts 4, 5 and 6 in our letter issued in Case Number 167342, made by the Partnership to its Partners.
RULING GIVEN
Based on the agreements identified above and the facts set out in our letter issued in Case Number 167342, we rule that the payment of a Distribution by the Partnership to a Partner is an exempt supply of a financial service under section 1 of Part VII of Schedule V to the ETA, unless the supply is zero--rated under Part IX of Schedule VI to the ETA.
This ruling does not address any potential impact of the proposed amendments to section 272.1.
EXPLANATION
When a partner acquires partnership units, the partner has acquired certain rights which include a right to receive distributions.
Subsection 123(1) defines “supply” to mean, subject to sections 133 and 134, the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental lease, gift, or disposition. The definitions of both “service” and “property” exclude money. However, paragraph (f) of the definition of “financial service” in subsections 123(1) specifically includes the payment and receipt of money in respect of a “financial instrument” and paragraph (d) of the definition of “financial instrument” in this subsection includes an interest in a partnership. A supply of a financial service is generally exempt under section 1 of Part VII of Schedule V to the ETA.
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) of the definition of “financial service” in subsection 123(1). When the Partnership provides the payment of a Distribution to a Partner, the Partnership is making a supply to the Partner which is an exempt supply of a financial service under section 1 of Part VII of Schedule V to the ETA, unless the supply is zero--rated under Part IX of Schedule VI to the ETA.
In accordance with the qualifications and guidelines set out in GST/HST Memorandum 1-4, Excise and GST/HST Rulings and Interpretations Service, the Canada Revenue Agency (CRA) is bound by the ruling given in this letter provided that: none of the issues discussed in the ruling are currently under audit, objection, or appeal; no future changes to the ETA, regulations or the CRA’s interpretative policy affect its validity; and all relevant facts and transactions have been fully and accurately disclosed.
If you require clarification with respect to any of the issues discussed in this letter, please call me at 613-670-0640 or Luba Baran, Manager of the Financial Services Unit at 613-670-1350. Should you have any additional question on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
Yours truly,
Robert Barnes
Financial Institutions Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate
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