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:
Where the terms of a partnership agreement provide a limited partner with the right to be excused or excluded from a particular investment, will the existence of this right result in the units of the limited partnership not being identical in all respects for the purposes of paragraph 5000(7)(d) of the definition of "qualified limited partnership"?
Position:
A limited partnership will cease to be a "qualified limited partnership" at the time any term or clause in a partnership agreement is exercised which would cause the interests of the limited partners which were described by reference to units of the partnership that were in all respects to no longer be identical.
Reasons:
XXXXXXXXXX 2002-013816
XXXXXXXXXX, 2002
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
Advance Income Tax Ruling 1999-000857, dated XXXXXXXXXX, 2000
and Advance Income Tax Ruling 2000-000628, dated XXXXXXXXXX, 2000
We are writing further to our letter of XXXXXXXXXX concerning the Advance Income Tax Ruling 2000-000628, issued to the above-named taxpayer on XXXXXXXXXX, 2000 (the "Letter"), which amended the Advance Income Tax Ruling 1999-000857, dated XXXXXXXXXX, 2000 (the "Ruling Letter") and added Ruling C thereto.
Ruling C of the Ruling Letter was that "The terms of the Draft Agreement will not cause the Partnership to contravene the condition described in paragraph 5000(7)(d) of the definition of "qualified limited partnership" that the interests of the limited partners are described by reference to units of the partnership that are identical in all respects."
We have completed our review of the issue and acknowledge the submissions by XXXXXXXXXX and yourself.
The Ruling Letter is hereby amended as follows:
The following will be added to the end of 10 of the Ruling Letter:
The terms of XXXXXXXXXX of the Draft Agreement are as follows:
(c) the provisions of XXXXXXXXXX applicable to a Defaulting Partner and its interest in the Partnership shall not apply to a Partner which has, within XXXXXXXXXX days after receipt by such Partner of a Capital Call Notice, delivered to the General Partner an opinion of counsel, reasonably acceptable in form and substance to the General Partner, to the effect that the Partner's participation in a particular Portfolio Company Investment would cause a violation of a law, regulation or administrative practice to which it is subject, in which event this Agreement shall be amended to reflect that the Commitment of such Partner shall be reduced in amount to the extent necessary so that such Partner may comply with such laws, regulations and administrative practices as are applicable to it. The General Partner may also exclude a Limited Partner from a particular Portfolio Company investment if the General Partner determines in good faith that a significant delay, extraordinary expense or materially adverse effect, directly or indirectly, on the Partnership, any Portfolio Company, or future investments is likely to result from such Limited Partner's participation in such Portfolio Company investment, and the provisions of XXXXXXXXXX applicable to a Defaulting Limited Partner and its interest in the Partnership shall not apply to a Partner who does not pay the portion of its Commitment payable in respect of a Portfolio Company investment from which it has been so excluded. If a Partner is excluded from a Portfolio Company investment as aforesaid, this Agreement shall be amended to reflect that the Commitment of each Partner shall be reduced by the amount the Partner would have been required to pay to the Partnership in connection with the Portfolio Company investment, had such Partner not been so excluded from same. The General Partner may, in its sole and absolute discretion, issue additional Capital Call Notices for the amount by which the Commitments of the Partners who have been excused or excluded from a particular Portfolio Company investment as aforesaid have been reduced to the Partners who are not so excused or excluded, provided that no Partner shall be required, pursuant to such Capital Call Notices, to fund amounts in excess of its unfounded Commitment.
Ruling C of the Ruling Letter is replaced with the following ruling:
C. Provided the Partnership qualifies as a "qualified limited partnership" in all respects within the meaning of subsection 5000(7) of the Regulations, the existence of the provisions of XXXXXXXXXX of the Draft Agreement, as described in 10 above, will not, in and of itself, cause the units of the Partnership not to be identical in all respects. However, if the terms in XXXXXXXXXX of the Draft Agreement, as described in 10 above, are exercised in respect of a Limited Partner, the Partnership will cease to qualify as a "qualified limited partnership" from the date of exercise of those terms as the units of the Partnership will thereafter cease to be identical in all respects, as required in the definition of "qualified limited partnership" under paragraph 5000(7)(d) of the Regulations.
The above ruling is given subject to the general limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002 and is binding on the Canada Customs and Revenue Agency.
The above ruling is based on the Act in its present form and does not take into account the effect of any proposed amendments. Except as expressly stated, our ruling does not imply acceptance, approval or confirmation of any tax implications of the facts or proposed transactions. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly, (a) the reasonableness of any expenses of the Partnership and (b) the existence of a reasonable expectation of profit of the Partnership or any partner of the Partnership.
Furthermore, this ruling is based on our understanding that the facts and proposed transactions set out in the Letter and Ruling Letter will be in accordance with the final documents and agreements with respect to these facts and proposed transactions. A material difference between 1) the final wording of one or more of the relevant documents, including the Draft Agreement, the subscription agreement and the Offering Memorandum, and 2) the facts and proposed transactions as set out above and in the Letter and Ruling Letter, will render the rulings given null and void.
In our view, the units of a "qualified limited partnership" as defined in subsection 5000(7) of the Regulations, may be considered to be "identical in all respects" on the basis that the interests of the limited partners were described by reference to units of the partnership that were identical in all respects at the time of issuance. However, a limited partnership will cease to be a "qualified limited partnership" at the time any term or clause in a partnership agreement is exercised which would cause the interests of the limited partners which were described by reference to units of the partnership that were identical in all respects to no longer be identical.
Yours truly,
XXXXXXXXXX
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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