Principal Issues: Would a status Indian limited partner be taxable on partnership income derived exclusively from mortgages held by the limited partnership on property located on an Indian reserve?
Position: Question of fact.
Reasons: Although the existence of a partnership is a question of fact outside of the scope of this reply, the existence of a partnership requires the carrying on of business. As held in R. v. Robinson, a limited partner in a limited partnership is considered to be carrying on business. Southwind v. the Queen stands for the principle that the 2 most significant connecting factors to situate business income on a reserve are: the location where the income-generating business activities take place and the location of the customers. In this fact situation, the business is arguably one of investment, so we should also consider Recalma v. the Queen. In Recalma, the courts determined that in the case of investment income, the connecting factor of the most significance is the location of the income generating activity of the investment. Other factors would be relevant, but their weight would depend on the facts of any particular situation. We generally take the position that in addition to generating income/earnings on a reserve, other factors would have to be present, such as: the investment is used to benefit Indians on reserve, the residency of the status Indian investor and the capital invested came from an exempt source.
XXXXXXXXXX Renée Shields
July 23, 2004