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.
FROM:
Kathryn Sigetich
Rulings Officer
Special Provision - FI Unit
TO:
[Addressee]
FILE 144410
DATE June 26, 2013
SUBJECT: GST/HST INTERPRETATION
Application of Section 272.1 to a General Partner
Thank you for your letter of May 2, 2012, concerning the application of section 272.1 of the Excise Tax Act (ETA).
BACKGROUND INFORMATION
From [...], we understand that the relevant facts are as follows:
1. [...] (the General Partner) is the sole general partner of [...] ([...] [Limited Partnership A]). [Limited Partnership A] was formed pursuant to [...] (the Agreement), dated [mm/dd/yyyy];
2. [Limited Partnership A] is engaged exclusively in commercial activities;
3. Based on the definition of "Business" in section [#] of the Agreement and section [#] of the Agreement, the purpose and business of [Limited Partnership A] consists of the provision of [...] telecommunications services, information technology services and other related and associated services...;
4. According to sections [#] and [#], of the Agreement, the General Partner is authorized and obligated to manage, control, administer and operate the business and affairs of [Limited Partnership A] and to make all decisions regarding the business of [Limited Partnership A] and to represent [Limited Partnership A]. This includes but is not limited to managing and controlling all of the activities of [Limited Partnership A], maintaining records and providing reports, employing all persons necessary for the conduct of the business of [Limited Partnership A], and paying all costs and expenses of [Limited Partnership A];
5. The General Partner is also the general partner for two other limited partnerships: [...] ([...] [Limited Partnership B]) and [...] ([...] [Limited Partnership C]) also involved in commercial activity; we have not been provided the terms of those partnership agreements;
6. [Limited Partnership A] made supplies to the General Partner of services performed by executive employees of [Limited Partnership A]. The executives are employees of [Limited Partnership A] and not of the General Partner. The executive employees are engaged in the management and direction of ongoing research and development that is directly related to the activities of the three limited partnerships: [Limited Partnership A], [Limited Partnership B] and [Limited Partnership C];
7. The General Partner paid an amount to [Limited Partnership A] for the salaries of these employees along with other associated costs that were billed by [Limited Partnership A] to the General Partner and GST/HST was accounted for by [Limited Partnership A] with respect to this amount; [Limited Partnership A] has not invoiced the General Partner for the repayment of the salaries and other associated costs, however, [Limited Partnership A] and the General Partner both made the relevant entries in their respective journals;
8. The General Partner has claimed ITCs of $[...] for its fiscal periods of [yyyy] to [yyyy] ("the ITCs") for GST/HST paid to [Limited Partnership A];
9. Section [#] of the Agreement provides that the General Partner will be reimbursed by [Limited Partnership A] for all expenses incurred by the General Partner in the performance of its duties as the General Partner pursuant to the Agreement, including all costs of administration, overhead and remuneration paid to officers and employees of [Limited Partnership A] or the General Partner. The General Partner has received no such reimbursement from [Limited Partnership A] in relation to the employee or other expenses in relation to which the General Partner has claimed ITCs;
10. The General Partner's main source of revenue consists of partnership income from [Limited Partnership A] and other revenue consists of a deferral of Investment Tax Credit;
11. The General Partner does not receive any payments from [Limited Partnership B] or [Limited Partnership C]; and
12. The [...] states that the expenditures in question were incurred on the General's Partner's own account and that despite not having commercial activity in its own right, the General Partner has registered for GST/HST purposes under paragraph 272.1(2)(b). The client is also of the view that should the purchase of the services be considered to be an acquisition of the Limited Partnership and not of the General Partner pursuant to subsection 272.1(1) of the ETA, then the General Partner should be entitled to a rebate of tax paid in error.
OPINION REQUESTED
You would like to know if the General Partner is entitled to claim ITCs under subsection 272.1(2) of the ETA.
OPINION GIVEN
Subsection 272.1(1) provides that anything done by a person as a member of a partnership is deemed to have been done by the partnership in the course of the partnership's activities and not to have been done by the person.
Subsection 272.1(2), an exception to this general rule, states that where a corporate partner of a partnership acquires property or a service for consumption, use or supply in the course of activities of the partnership on its own account rather than that of the partnership's, and has not been reimbursed by the partnership, for purposes of determining an ITC of the partner in respect of that property or service, the partner is deemed to be engaged in the activities of the partnership.
The determination of whether a member of a partnership is acquiring property or services on its own account for consumption, use or supply in the course of the activities of the partnership must be determined on a case basis and is based on the particular provincial partnership law, the terms of the Agreement and the facts of the particular situation.
Since the General Partner is responsible under the Agreement for operating the business of [Limited Partnership A], it would be reasonable to regard the services of the executives as being acquired by the General Partner on its own account for use in the course of the activities of [Limited Partnership A] - notwithstanding that the services are supplied by [Limited Partnership A].
Consequently, the General Partner would be entitled to claim ITCs with respect to the GST/HST that the General Partner paid to [Limited Partnership A] for the salaries of the executive employees and associated costs provided the requirements of section 169 and related provisions are met (i.e., to the extent that the ITCs claimed relate to supplies acquired for consumption, use, or supply in the commercial activities of [Limited Partnership A]).
Although it appears that the General Partner has not received a reimbursement from [Limited Partnership A], the Agreement provides for such. It should be noted that where a partner acquires a supply on its own account for use in partnership activity and is reimbursed for this expense, then under subsection 272.1(2) the partner's ITC is reduced by the amount of the ITC that the partnership is entitled to claim under section 175 unless the reimbursement is made after the partner had claimed its ITC.
A review of the relevant partnership agreements is required to confirm that the General Partner incurs expenses in its capacity as a member of the other two partnerships: [Limited Partnership B] and [Limited Partnership C]. Whether the General Partner is entitled to claim ITCs for expenses incurred with respect to the activities of these partnerships would also be subject to the requirements of sections 272.1 and 169 and related provisions.
It should be noted that not all of the General Partner's activities are commercial activities (i.e., its interest in [Limited Partnership A] is a financial instrument and distribution of partnership income by [Limited Partnership A] to the General Partner is a financial service). There is no entitlement to ITCs for tax payable in the course of non-commercial activities. [...].
If you require clarification with respect to any of the issues discussed in this letter, please call me directly at 613-957-8221. Should you have additional questions on the interpretation and application of GST/HST, please contact a GST/HST Rulings officer at 1-800-959-8287.
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