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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: how subclause 127.52(1)(i)(i)(B)(II) works
Position: as described in the law
Reasons: 127.52(1)(i)(i)(B)(I)
XXXXXXXXXX 2001-009976
Denise Dalphy, LL.B.
(613) 957-9231
February 6, 2002
Dear XXXXXXXXXX:
Re: Limited Partnerships and Minimum Tax
We are writing in reply to your letter dated September 4, 2001 wherein you requested or interpretation of paragraph 127.52(1)(i) of the Income Tax Act (the "Act"). Unless otherwise stated, every reference herein to a Part, section, subsection, paragraph, subparagraph, clause or subclause is a reference to the relevant provision of the Income Tax Act.
FACTS
Our understanding of the relevant facts is as follows:
1. A Limited Partnership (the "Partnership") was formed by two individuals (the "Limited Partners") after 1994.
2. The Partnership had no capital gains or losses from the date the Partnership was formed to the present.
3. The Partnership had no income or losses from property from the date the Partnership was formed to the present.
4. The Partnership had non-capital losses from the date the Partnership was formed to the present.
5. The Partnership was not engaged in a farming business.
6. The Partnership has not incurred any foreign resource pool expenses, Canadian exploration expenses, Canadian development expenses or Canadian oil and gas property expenses.
7. The Limited Partners are not entitled to any investment tax credits for any taxation years.
8. The Limited Partners have never been entitled to deduct, in computing their income for the year, any amounts in respect of a rental or leasing property.
9. The Limited Partners have never been entitled to deduct, in computing their incomes for the year, any amounts in respect of a film property.
You have asked us to advise you how to determine the amount of non-capital losses and limited partnership losses deductible by a Limited Partner for a particular taxation year for minimum tax purposes. In particular, you question the interaction of subclause 127.52(1)(i)(i)(B)(II), paragraph 127.52(1)(c.2) and paragraphs 111(1)(a) and (e).
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 70-6R4 (the "Circular"). Where the particular transactions are partially completed or completed, the enquiry should be addressed to the relevant Tax Services Office. Notwithstanding the foregoing, we are providing the following comments.
Subsection 127.52(1) requires, inter alia, an individual to compute his or her taxable income for the year or his or her taxable income earned in Canada for the year, as the case may be, if it were computed on the assumption that:
"(c.2) where, during a fiscal period of a partnership that ends in the year (other than a fiscal period that ends because of the application of subsection 99(1)),
(i) the individual is a limited partner of the partnership, or is a member of the partnership who was a specified member of the partnership at all times since becoming a member of the partnership, or
(ii) the partnership owns a rental or leasing property or a film property and the individual is a member of the partnership,
the total of all amounts each of which is an amount deductible under any of paragraphs 20(1)(c) to (f) in computing the individual's income for the year in respect of the individual's acquisition of the partnership interest were the lesser of
(iii) the total of all amounts otherwise so deductible, and
(iv) the total of all amounts each of which is the individual's share of any income of the partnership for the fiscal period, determined in accordance with subsection 96(1); ......
(i) in computing the individual's taxable income for the year or the individual's taxable income earned in Canada for the year, as the case may be, the only amounts deductible under
(i) paragraphs 111(1)(a), (c), (d) and (e) were the lesser of
(A) the amount deducted under those paragraphs for the year, and
(B) the total of all amounts that would be deductible under those paragraphs for the year if
(I) paragraphs (b), (c) and (e) of this subsection, as they read in respect of taxation years that began after 1985 and before 1995, applied in computing the individual's
non-capital loss, restricted farm loss, farm loss and limited partnership loss for any of those years, and
(II) paragraphs (b) to (c.3), (e) and (e.1) of this subsection applied in computing the individual's
non-capital loss, restricted farm loss, farm loss and limited partnership loss for any taxation year that begins after 1994, and"
We do not know whether the Partners had limited partnership losses in any taxation year or whether non-capital losses or limited partnership losses have been deducted by the Limited Partners for any taxation year. We also have no information as to whether, among other things, any of paragraphs 127.52(1)(c.2) or (c.3) apply (that is, we have no information as to whether any amounts were deductible under any of paragraphs 20(1)(c) to (f) in respect of a Limited Partner's acquisition of an interest in the Partnership or whether a tax shelter identification number is required with respect to the Partnership).
In general terms, paragraph 127.52(1)(i)(i) limits the deductibility, for minimum tax purposes, of, inter alia, non-capital losses [paragraph 111(1)(a)] and limited partnership losses [paragraph 111(1)(e)] to the lesser of the amount of that loss that was actually deducted for the year and the amount determined under clause 127.52(1)(i)(i)(B). Accordingly, a Limited Partner's pool of deductible non-capital losses and limited partnership losses must be recomputed on the basis of the assumption in subclause 127.52(1)(i)(i)(B)(II) (as well as on the assumption described in subclause 127.52(1)(i)(i)(B)(I)) namely, what amounts would be deductible for the year under paragraphs 111(1)(a),(c) (d) and (e) if paragraphs (b) to (c.3), (e) and (e.1) of subsection 127.52(1) applied in computing that loss.
For example, consider a situation where a non-capital loss of $20 was deducted in 1999 by a Limited Partner. Assume further that the Limited Partner claimed a paragraph 20(1)(c) deduction of $120 in 1995 with respect to the acquisition by him of his interest in the Partnership, and that his income from the Partnership for that year was $100.
In 1995, for AMT purposes, paragraph 127.52(1)(c.2) would require the Limited Partner to recompute his income on the basis that the paragraph 20(1)(c) deduction in 1995 was $100, not $120. In addition, in 1999, for AMT purposes, paragraph 127.52(1)(i) would require the Limited Partner to recompute his income on the basis that the only amount deductible by him in 1999 as a non-capital loss was nil. [This would be the result of the application of subclause 127.52(1)(i)(i)(B)(II), namely the lesser of the non-capital loss deducted by the Limited Partner in 1999 and the amount that would have been the Limited Partner's non-capital loss in 1999 if, for example, paragraph (c.2) applied in any year beginning after 1994. In the hypothetical scenario above, the second amount in subclause 127.52(1)(i)(i)(B)(II) would be nil, because the application of paragraph 127.52(1)(c.2) would result in a reduction of Limited Partner's non-capital loss to nil.]
Finally, we would add that, since the Partnership has had consistent losses since 1994, the issue of whether the Partnership is carried on with a reasonable expectation of profit should be considered.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of the Circular, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. 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
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2002
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2002