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: Under the proposed amendments to subsection 181.2(5) of the Act, will a corporate partner be eligible for an investment allowance with respect to the carrying value of its interest in a partnership where that partnership loans money to another partnership?
Position: Yes, to the extent permitted by proposed subsection 181.2(5) and provided the requirements of paragraph 181.2(4)(d.1) are met.
Reasons: Pursuant to proposed subsection 181.2(5) of the Act the carrying value of an interest in a partnership is calculated with reference to the amount that would be the partnership's investment allowance if it were a corporation.
2004-007925
XXXXXXXXXX Luisa A. Majerus
(613) 946-3558
June 15, 2004
Dear XXXXXXXXXX:
Re: Application of Proposed Subsection 181.2(5)
This letter is further to your request for clarification of the application of the proposed 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 investment allowance in respect of the carrying value of its interest in a partnership where that partnership has loaned money to another partnership.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following general comments.
A corporate member of a partnership is entitled to an investment allowance in respect of the carrying value of its interest in a partnership. The current legislation in subsection 181.2(5) of the Act provides that the carrying value of an interest of a corporation in a partnership shall be deemed to be an amount equal to that proportion of the total of all amounts each of which is the carrying value of an asset of the partnership subject to certain exceptions described in any of paragraphs 181.2(4)(a) to (d) and (f) of the Act that the corporation's share of the partnership's income or loss for that period is of the partnership's income or loss for that period. An asset that is a loan from a partnership to another partnership is not included in the calculation of the carrying value of a corporate member's interest in the lending partnership since the existing legislation does not make reference to paragraph 181.2(4)(d.1) of the Act.
However, under the proposed amendments to subsection 181.2(5) of the Act, effective for taxation years beginning after December 20, 2002, the carrying value at the end of a taxation year of an interest of a corporation in a partnership is deemed to be the corporation's specified proportion, for the partnership's last fiscal period that ends at or before the end of the taxation year, of the amount that would be the partnership's investment allowance if the partnership were a corporation. Consequently, if the amendments to subsection 181.2(5) of the Act are enacted as proposed, for purposes of the investment allowance in subsection 181.2(4) of the Act, the carrying value of a corporate member's interest in a partnership will effectively include the corporate member's specified proportion of an asset of the partnership that is a loan to another partnership provided the requirements of paragraph 181.2(4)(d.1) of the Act are met.
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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