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: Will a corporation that is a member of a limited partnership be considered to employ the employees of the limited partnership for purposes of the test in clause 206(1.1)(d)(iii)(A?
Position: Generally, yes.
Reasons: In the context of the definition of "specified investment business" we stated at the 1988 CTF Conference Roundtable that "with respect to the partner's income from the particular partnership only, each full-time employee of the particular partnership will be considered to be a full-time employee of each corporate partner, whether general or limited". For the purposes of section 7, we have taken the position that corporate partners may generally be treated as being the employer of the employees of the partnership (in the absence of facts to the contrary such as a separate employment contract between an employee and one of the partners of the partnership).
XXXXXXXXXX 2002-014093
G. Kauppinen
September 12, 2002
Dear XXXXXXXXXX:
Re: Clause 206(1.1)(d)(iii)(A) of the Income Tax Act ("Act")
This is in reply to your letter dated May 9, 2002 regarding the above-referenced clause of the Act.
You have asked for our view on whether employees of a partnership would be considered to be employees of a corporate partner of the partnership for the purposes of the "substantial Canadian presence" tests in paragraph 206(1.1)(d) of the Act and, in particular, clause 206(1.1)(d)(iii)(A) thereof.
You have assumed that the corporate partner satisfies the tests in subparagraphs 206(1.1)(d)(i) and (ii) of the Act in that it was incorporated under the laws of Canada and maintains an office in Canada.
You also assume that the partnership employs more than 5 individuals in Canada full time and those individuals are employed primarily in connection with an active business (i.e., not an "investment activity") carried on by the partnership and the corporate partner is a "majority interest partner".
You have asked if the employees of the partnership would be considered to be employees of the corporate partner for the purposes of clause 206(1.1)(d)(iii)(A) of the Act.
Opinions concerning proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002, issued by the CCRA. Copies of information circulars and interpretation bulletins are available from your local tax services office or on the Internet at the following site - http://www.ccra-adrc.gc.ca/formspubs/menu-e.html. However, we can provide you with the following general comments.
In the above scenario, if the requirements in paragraph 206(1.1)(d) of the Act are satisfied, then, pursuant to subsection 206(1.1) of the Act, property described in paragraph (d.1) of the definition "foreign property" in subsection 206(1) of the Act will not include shares or debt obligations issued by the corporate partner.
Under your assumptions, paragraph 206(1.1)(d) of the Act would be satisfied if the employees of the partnership would be considered employees of the majority interest corporate partner for the purposes of clause 206(1.1)(d)(iii)(A) of the Act.
In our view, for the purposes of clause 206(1.1)(d)(iii)(A) of the Act, the majority interest corporate partner of the partnership will be considered to employ more than 5 employees if those employees are employed by the partnership.
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
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