13 December 2001 External T.I. 2001-0108305 - Is a partnership an unrelated person

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: Is a partnership an "unrelated person" with respect to a subsidiary corporation controlled by the partnership, where each member of the partnership is related to the subsidiary corporation.

Position: No

Reasons: Each member of the partnership is related to the subsidiary corporation.

2001-010830
XXXXXXXXXX T. Lanzer
(613) 957-2129
December 13, 2001

Attention: XXXXXXXXXX

Dear Sirs:

Re: Paragraph 55(3.01)(a) - Unrelated Person

We are writing in response to your letter of October 24, 2001 wherein you requested our opinion as to whether a partnership described in your letter is considered to be an unrelated person for the purposes of paragraph 55(3.01)(a).

In your situation:

(a) a limited partnership (the "Partnership") was created by written partnership agreement under the laws of the Province of Manitoba XXXXXXXXXX;

(b) the Partnership is engaged in a variety of activities and earns significant profits;

(c) the General Partner of the Partnership is a Canadian corporation. All the voting shares of the General Partner are owned by father. There are three limited partners. Two of the limited partners are the father's adult children. The third limited partner is a Canadian corporation, all the voting shares of which are owned by father. Father and children are all resident in Canada;

(d) under the partnership agreement, the General Partner is entitled to XXXXXXXXXX% of the profits. The three limited partners are each entitled to XXXXXXXXXX% of the profits;

(e) the Partnership owns all the shares of another Canadian corporation ("Subco"); and

(f) the partnership agreement provides that the General Partner has the authority to make all of the decisions concerning the Partnership and, therefore, the General Partner makes all decisions concerning the exercise of the voting rights attached to the issued shares of Subco.

The issue to be determined arises in the context of paragraph 55(3)(a) of the Income Tax Act (the "Act"). If Subco is a "dividend recipient", is the Partnership considered to be an "unrelated person", as defined in paragraph 55(3.01)(a)?

In your view, the Partnership is not an "unrelated person", within the meaning given to that expression by paragraph 55(3.01)(a), in respect of Subco, since all members of the Partnership are related to Subco. In your view, this results from the fact that the General Partner controls and is related to Subco by virtue of having the right to determine how the shares of Subco will be voted. The adult children who are limited partners are also related to Subco by virtue of subparagraph 251(2)(b)(iii). The third limited partner which is a Canadian corporation is also related to Subco, since they are both controlled by father.

Our Comments

We agree.

In accordance with paragraph 22 of Information Circular 70-6R4, the opinions expressed in this letter are not income tax rulings and are, therefore, not binding on the Canada Customs and Revenue Agency.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch