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: Can subsection 152(1.4) be applied by the Minister to a partnership that is not a Canadian partnership and its only income earned in Canada is property income earned from a rental property in Canada?
Position: No.
Reasons: A partnership information return is not required under subsection 229(1) of the Regulations because the partnership does not carry on a business in Canada. Therefore, subsection 152(1.4) cannot be applied by the Minister.
2004-010374
XXXXXXXXXX Catherine Bowen
(613) 957-8284
December 10, 2004
Dear XXXXXXXXXX:
Re: Income Determination of a Partnership
We are writing in response to your letter dated November 12, 2004, wherein you requested our comments on the application of subsection 152(1.4) of the Income Tax Act (the "Act") to a hypothetical situation. In particular, you described a situation where a partnership owns a rental building situated in Canada and no other property. The rental income from the building constitutes income from property to the partnership and not income from carrying on a business in Canada. All of the partners of the partnership are non-residents of Canada. You asked us to comment on whether subsection 152(1.4) of the Act can be applied to the partnership.
Written confirmation of the income 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 as described in Information Circular 70-6R5 dated May 17, 2002 issued by the Canada Revenue Agency. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Although we cannot provide any comments with respect to the situation described in your letter, the following general comments may be of assistance.
Unless otherwise exempted from doing so under subsection 220(2.1) of the Act, subsection 229(1) of the Income Tax Regulations (the "Regulations") requires that, every member, whether a resident or non-resident of Canada, of a partnership that carries on a business in Canada at any time in a fiscal period of the partnership shall make an information return (i.e., the Partnership Information Return) for that period. However, where a partnership does not carry on a business in Canada at any time in a fiscal period, no such return would be required to be filed for that period unless the partnership is a Canadian partnership (as defined in subsection 102(1) of the Act) at any time in that period. It is a question of fact as to whether the rental of real property in Canada constitutes the carrying on of a business or whether the rental income received constitutes income from property. Factors to be considered in making this determination are discussed in paragraph 7 of Interpretation Bulletin IT-177R2 (Consolidated), Permanent Establishment of a Corporation in a Province.
Where a partnership is not required, pursuant to subsection 229(1) of the Regulations, to file a Partnership Information Return for a fiscal period, subsection 152(1.4) of the Act can not be applied by the Minister of National Revenue to make a determination of the partnership's income or loss for that fiscal period, nor can an assessment for each member of the partnership be issued pursuant to subsection 152(1.7) of the Act.
If, however, it is subsequently determined that a partnership was carrying on a business in Canada at any time in a fiscal period and a Partnership Information Return has not been filed as required under subsection 229(1) of the Regulations (and the requirements to do so are not waived under subsection 220(2.1) of the Act), a determination under subsection 152(1.4) of the Act may be made within 3 years after the return is actually filed (as per paragraph 152(1.4)(b) of the Act). Penalties for failing to file that return when required to do so are contained in subsections 162(7), 162(7.1) and 162(8) of the Act.
Our comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R5. We trust our comments are of assistance.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Planning Branch
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