24 May 2000 External T.I. 1999-0011485 - Limited Partnership

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Expectation of profit and whether an activity or undertaking constitutes the carrying on of a business.

Position: general comments - Question of fact. Consider time spent, type of revenue, expenses and business plan.

Reasons:

1999-001148
XXXXXXXXXX S. Tevlin
(613) 957-2093
May 24, 2000

Dear Sir:

Re: Limited Partnership

We are writing in response to your letter dated October 15, 1999 wherein you requested information on the procedures required to request an advance income tax ruling with respect to a proposed limited partnership arrangement.

In this regard we are enclosing a copy of Information Circular 70-6R3 dated December 30, 1996, titled Advance Income Tax Rulings, and a copy of Interpretation Bulletin IT-138R - Computation and flow-through of partnership income.

Subsection 96(1) of the Income Tax Act (the "Act") computes the income of a partnership as if it were a separate person resident in Canada. A partnership's business income / loss is allocated to each partner to the extent of that partner's share.

Income for a taxation year from a business is the profit therefrom for the year. The concept of profit is critical in determining whether an activity or undertaking constitutes the carrying on of a business. Generally, any undertaking or activity that results in profits or has a reasonable prospect of profits would be viewed as the carrying on of a business. On the other hand, where the activity or undertaking has no reasonable expectation of producing profits, a business would not be considered to have been carried on and any losses that resulted would not be deductible for income tax purposes.

Whether or not a business has a reasonable expectation of profit is an objective determination to be made from all the facts. The relevant factors to be considered in making such a determination will differ with the nature and extent of the activity or undertaking. Some of the factors which may be relevant in determining whether or not a business has a reasonable expectation of profit include:

• the amount of time devoted to the activity or undertaking,
• the amount of revenue from the activity or undertaking,
• the type of expenditures claimed and their relevance to the business,
• a business plan relating to growth, promotion, etc.

No particular factor described above is more important than another and no one factor determines whether or not an activity is a business carried on for profit or with a reasonable expectation of profit. All relevant criteria are considered together in making a determination and failure to meet any one particular factor will not in itself preclude the activities from qualifying as a business.

If you have any questions regarding these publications please contact Mr. Steve Tevlin at (613) 957-2093.

Yours truly,

Paul Lynch
for Director
Resources, Partnerships and Trusts Division
Income tax Rulings Directorate
Policy and Legislation Branch

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