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 98(5) can apply where one of partners is a partnership
Position: it depends on which partner continues to carry on the business. it will not apply is partner that is a partnership carries on the business
Reasons: 102(2) is a limited deeming provision. It does not make a partnership a sole proprietor
2000-006072
XXXXXXXXXX Denise Dalphy, LL.B.
(613) 957-9231
January 26, 2001
Dear XXXXXXXXXX:
Re: Partnership Business Carried on as Sole Proprietorship
We are writing in reply to your letter dated December 7, 2000 wherein you requested an opinion on the interaction of subsections 98(5) and 102(2) of the Income Tax Act (the "Act") where one of the partners in a particular partnership is itself a partnership.
Written confirmation of the consequences 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 submitted in the manner set out in Information Circular 70-6R3. Where the particular transactions are partially completed or completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature.
In our opinion, subsection 98(5) of the Act may apply in a situation where the members of a partnership are one person and another partnership, but only where the one person continues to carry on the business that was the business of the partnership. Subsection 98(5) would not apply where, on the dissolution of the partnership, the other partnership continues to carry on the business. Although subsection 102(2) provides that "... a reference to a person or a taxpayer who is a member of a particular partnership shall include a reference to another partnership that is a member of the particular partnership", it is a limited deeming provision and does not deem the partnership that continues the business to be either "one" person or to carry on "alone" the business, which are prerequisites for the application of subsection 98(5). This position is supported by the heading of subsection 98(5): "Where partnership business carried on as sole proprietorship" [emphasis added] and by the fact that the words in parentheses in the preamble of subsection 98(5) describe the "proprietor" as "an individual, a trust or a corporation": no provision is made for either "persons" generally, or for a partnership, in particular.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R3, the above comments do not constitute an income tax ruling and accordingly are not binding on the Department. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.
Yours truly,
Steve Tevlin
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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