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.
Principal Issues: Will a corporate partner, who has loaned money to a partnership, be eligible for an investment allowance with respect to the carrying value of its loan to the partnership under the proposed amendments to section 181.2 of the Act?
Position: No.
Reasons: The loan is not an asset included in investment allowance under subsection 181.2(4), which is appropriate given the loan is not included in the capital of the corporate partners under 181.2(3)(g). Proposed amendment to 181.2(5) is not relevant.
2003-005750
XXXXXXXXXX Luisa A. Majerus
(613) 946-3558
March 4, 2004
Dear XXXXXXXXXX:
Re: Application of Proposed Subsection 181.2(5)
This is in reply to your letter of January 16, 2004 concerning the application of the draft amendments to subsection 181.2(5) of the Income Tax Act (the "Act"). Specifically, you have asked our views on whether the proposed amendments under subsection 181.2(5) of the Act permit a corporate member of a partnership to claim an amount in respect of investment allowance for the carrying value of a loan by it to the partnership.
It is your view that under the current legislation, loans between corporate partnerships give rise to asymmetrical tax treatment for capital tax purposes under section 181.2 of the Act. A corporation borrowing money from a partnership in which it is a member will have to include the amount of the loan in its capital pursuant to subsection 181.2(3) of the Act. However, a corporation lending money to a partnership in which it is a member will not be entitled to an investment allowance with respect to the carrying value of the loan pursuant to paragraph 181.2(4)(d.1) of the Act.
It is our view that the above treatment is not asymmetrical for two reasons. Firstly, the corporate members are each entitled to an investment allowance for a pro-rata share of their interest in the partnership. Included in the carrying value of the interest in the partnership is the carrying value of the loan from the partnership to the corporate member. Therefore, the borrowing corporation's inclusion in capital under 181.2(3) of the Act of its loan from the partnership is offset by the total of the investment allowance claimed by all corporate members of that partnership. Secondly, while a lending partner is not entitled to an investment allowance in respect of its loan to the partnership, the loan is also not included in the capital of the corporate partners.
Accordingly, the proposed amendment to subsection 181.2(5) of the Act was not intended to, nor does it, provide for an investment allowance in respect of a loan made by a corporate partner to a partnership of which it is a member. Rather, the proposed amendment addresses the calculation of the investment allowance of a corporation that is a member of a tiered partnership.
We trust this information is helpful.
Yours truly,
F. Lee Workman
Manager
Financial Institutions Team
Income Tax Rulings Directorate
Policy and Planning Branch
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