CRA elaborates slightly on its policy re annual reversing loans by an LP to its limited partners

We have published a page setting out the questions posed at yesterday’s CRA Roundtable at the Annual CTF Conference together with abbreviated summaries of CRA’s oral responses.

Q.1 repeated CRA’s now well-known position (announced at the 2022 APFF Roundtable, Q.5) accommodating the making of loans by a limited partnership to its limited partners to avoid negative ACB gains that would have arisen by making the same payments as draws. In addition to summarizing its 5 conditions for the APFF-announced policy to apply, CRA made some short oral editorial comments in relation to the 1^st and 4^th conditions, that perhaps shed further light on their interpretation. These two conditions are laid out below, together with a paraphrase of the two related oral comments in bold:

1. The loan should not be made in satisfaction of a return of contributions of capital of the partner. (This position is meant to permit only the distribution of profits.) …

4. The loan should be made primarily for the purpose of avoiding a deemed gain under s. 40(3.1) that would be realized by the partner at the end of the partnership’s fiscal period, and that would solely be due to the timing difference between the addition in, and deduction from, the calculation of the ACB of the partnership interest related to the partner’s share of the partnership-adjusted income, and the distributions to the limited partner in respect of the period on their side. (This administrative position enables the partner to enjoy the income being earned during the year because of the technical mismatch between the timing of the income inclusion and the distributions.)

Neal Armstrong. Summary of 29 November 2022 CTF Roundtable, Q.1 under s. 40(3.1).