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: Whether a partnership can be used in an estate freeze.
Position: Question of fact but generally "no".
Reasons: Subsections 103(1) or (1.1) generally apply.
File 2004-007000
STEP Conference - Round Table
Topic 9
Partnership Estate Freezes
Question 1
Does CRA have any doubts or concerns about the possibility of using partnerships in estate freezes?
Response
In order to provide any specific comments, we would need to review the proposed transactions whereby a partnership is used to freeze an estate. We have never issued a favourable advance income tax ruling on proposed transactions involving the use of a partnership to implement an estate freeze.
We considered this issue at the 1992 Canadian Tax Foundation Round Table. In response to question 13 at that conference, we stated, in part, that whether or not a partnership is used for estate-freezing purposes, the allocation of income within a partnership should recognize the capital contributions of the partners, as well as the non-monetary contributions of each partner. Otherwise, subsection 103(1) or (1.1) of the Act may apply to alter the allocation of partnership income, loss or other amounts. We continue to hold this view.
Question 2
How can such concerns be addressed in practice?
Response
Whether subsection 103(1) or (1.1) would apply in any particular situation would depend on the specific facts involved. However, our overall position is that these provisions would apply.
In order to provide any definitive comments on a particular arrangement whereby a partnership is used in an estate freeze, and on whether subsections 103(1) or 103(1.1) would apply, we would need to review all of the facts and documentation related to the transactions. Such a review would normally only be undertaken in the context of an advance income tax ruling request.
B.G. Dodd
Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
May 7, 2004
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