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: Whether a foundation would be considered to be carrying on a business if it becomes a limited partner in a partnership.
Position: Yes
Reasons: A partnership is defined in common law as the relationship between persons carrying on business in common with a view to profit.
XXXXXXXXXX 2000-000547
Attention: XXXXXXXXXX
May 10, 2000
Re: Limited Partnership
Dear Sirs:
This is in reply to your letter of January 28, 2000 wherein you requested our views as to whether a private foundation which acquires an interest in a limited partnership would be considered to carry on a business by virtue of its limited partnership interest such that the private foundation's registration could be revoked pursuant to paragraph 149.1(4) (a) of the Income Tax Act ("Act").
Pursuant to paragraph 149.1(4)(a) of the Act the registration of a private foundation can be revoked if the private foundation carries on any business. As you noted a partnership is defined in common law as the relationship between persons carrying on a business in common with a view to profit. Our view that the partners carry on the business of the partnership is supported by the 1998 Federal Court of Appeal decision in the Robinson case (98 DTC 6065) wherein the Court concluded that even though the limited partner "took no part in the management of the business does not, in my view, mean that it and the other limited partners did not carry on that business in conjunction with the general partners in that year." The Court also referred to another decision, Grocott (1996 1 CTC 2311) which stated that "A limited partner is nonetheless a partner in a partnership. It is simply that his liability is limited by statute provided that he does not participate in running the business. I do not think it can be said that this limitation of liability and prohibition against any active part in the control of the business means that he is not carrying on business through the partnership." The fact that the principal activity of the partnership may be the investment of funds does not alter our view that the partnership would be carrying on business with a view to profit. Consequently, if a private foundation acquires an interest in a partnership it is our view that the private foundation as a limited partner would be carrying on business through the partnership such that its registration would be subject to revocation.
We also note that the registration of a private foundation would be subject to revocation where its investment activities are so significant as to constitute the carrying on of a business.
We hope that the above comments will be of assistance.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
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