14 February 2001 External T.I. 2000-0054395 - Partnerships - Qualified Inv. & Foreign PPTY

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:

For the purposes of the definition of "qualified investment" in paragraph 4900(1)(i) of the Regulations and paragraph (g) of the definition of "foreign property" in subsection 206(1) of the Act will notes issued by a partnership be considered to be notes issued by each of the partners?

Position:

Yes, but each partner is jointly and severely liable for an undivided interest in the debt.

Reasons:

Under common law a partnership is a relationship and not a separate legal entity. As such, it cannot legally own assets or issue debt in its own right. The partners of a partnership all have undivided interests in all of the assets and liabilities of the partnership. The test for foreign property and qualified investment where debt is issued by a partnership is that each partner must satisfy the particular test applied as if the partner issued the debt itself directly to investors and not through the partnership. If the debt would not be a qualified investment if it was issued directly by one of the partners then all of the debt issued in the name of the partnership will be a non-qualified investment. Similarly, if one of the partners is a non-resident then all of the debt issued by the partnership will be foreign property. The test must be applied to any new member of the partnership in determining the status of the debt as foreign property and/or a qualified investment.

				2000-005439
XXXXXXXXXX  			G. Kauppinen
(613) 957-8971
February 14, 2001

Dear XXXXXXXXXX:

Re: Partnerships - Qualified Investment and Foreign Property Rules

This is in reply to your facsimile dated November 2, 2000 regarding the above-noted subject.

You ask for confirmation that we will consider notes issued by a partnership to be notes of the partners for purposes of the definition of "qualified investment" in paragraph 4900(1)(i) of the Income Tax Regulations and the definition of "foreign property" in paragraph (g) of subsection 206(1) of the Income Tax Act ("Act").

We confirm the foregoing interpretation except that each partner will be considered to have a liability which is an undivided interest in the note payable issued in the name of the partnership.

Consequently, if any partner is a non-resident, the entire note issued by the partnership will be foreign property. Also, if the note would be a non-qualified investment if it were issued by any one of the partners directly to investors (i.e., not through the partnership), then the entire note issued in the name of the partnership will be a non-qualified investment.

The foregoing test must be applied whenever a new partner joins the partnership as the status of the debt issued by the partnership as a qualified investment and/or foreign property may change at that time.

Written confirmation of the tax implications inherent in particular transactions are given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request. However, we are prepared to provide the above comments which are of a general nature. We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch