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 partnership interest qualifies as excluded property
Position: A partnership interest may be excluded property
2008-028802
XXXXXXXXXX D. Zhang
(613) 957-2104
August 11, 2008
Dear XXXXXXXXXX :
Re: Excluded Property
We are writing further to our letter to you dated September 21, 2007 (re: 2007-0251651E5). In that letter we addressed a question raised by you regarding the meaning of "excluded property" in subsection 95(1) of the Income Tax Act (the "Act"). More specifically, you asked us whether a partnership interest could be excluded property if the partnership earns income from an active business income carried on in Canada. In our response, we indicated that this would not preclude the partnership interest from being excluded property. However, in the opening sentence of the letter we stated as follows:
Pursuant to the definition of "excluded property" in subsection 95(1) of the Act, a partnership interest held by a foreign affiliate of a taxpayer will be considered to be excluded property, provided that all or substantially all of the property of the partnership is used or held by the partnership principally for the purpose of gaining or producing income from an active business.
As discussed, that sentence should read as follows:
Pursuant to the definition of "excluded property" in subsection 95(1) of the Act, a partnership interest held by a foreign affiliate of a taxpayer (in the circumstances described in your letter) will be considered to be excluded property provided that the fair market value of the partnership interest held by the foreign affiliate is not less than 10% of the fair market value of all interests in the partnership and all or substantially all of the property of the partnership is used or held by the partnership principally for the purpose of gaining or producing income from an active business.
We would also note, as discussed with you, that where a foreign affiliate of a Canadian resident immigrates to Canada, the implications of paragraph 128.1(1)(d) of the Act must be considered.
Please contact us at the above-noted number if you have any questions or concerns.
Yours truly,
Daryl Boychuk
for Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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