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 corporation's income from a partnership is income from a specified investment business. The partnership's only activity is the holding of real estate for the purpose of earning rental income, and it does not employ more than five full-time employees. However, the corporation, which itself has employees, acts as property manager for some of the properties held by the partnerships, while the other properties are managed by unrelated third parties.
Position: Question of fact.
Reasons: It would be necessary to confirm the legal relationship between all parties (i.e., whether a partnership or co-ownership exists), whether the employees were employed by the partnership or the corporation, and whether services are provided by an associated corporation such that it would be reasonably expected to require more than five full-time employees if those services had not been provided.
XXXXXXXXXX J. Gibbons, CGA
2000-004781
February 21, 2001
Dear Sir/Madam:
We are replying to your letter dated September 14, 2000, concerning the definition of "specified investment business" in subsection 125(7) of the Income Tax Act. More specifically, you wish to know if this definition applies to the particular situation described below.
Facts
1. A corporation (the "taxpayer") is engaged in the business of real estate rental property management.
2. The taxpayer also holds a minority interest in several partnerships.
3. Each of the partnership's only activity is the holding of real estate for the purpose of earning rental income.
4. The taxpayer acts as property manager for some of the properties held by the partnerships, while the other properties are managed by unrelated third parties.
5. None of the partnerships employ more than five full-time employees.
6. The taxpayer does not have more than five full-time employees employed in the management of the properties held by any individual partnership.
7. In total, there are more than five full-time employees employed in all of the partnerships taken together.
Your views
Based on the foregoing facts, it is your conclusion that the income earned by the taxpayer from the rental partnerships is income earned from a specified investment business. You wish to know whether we agree with this view.
Our views
As requested, we have considered the situation outlined in your letter and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4. Thus, our comments are of a general nature only.
In our answer to question 51 at the 1988 Canadian Tax Foundation Annual Conference Roundtable, we stated that for the purposes of the definition of specified investment business, "with respect to the partner's income from the particular partnership only, each full-time employee of the particular partnership will be considered to be a full-time employee of each corporate partner, whether general or limited". In other words, it is our general view that each partnership must be considered separately when determining whether a partner's income is from a specified investment business. However, since it is a question of fact whether a business is an active business or a specified investment business, such a determination would require a review of all relevant facts. For instance, it would be necessary to confirm the legal relationship between all parties (i.e., whether a partnership or co-ownership exists), whether the employees were employed by the partnership or the corporation, and whether services are provided by an associated corporation such that it would be reasonably expected to require more than five full-time employees if those services had not been provided.
We trust that these comments will be of assistance.
Yours truly,
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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