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: On an acquisition of control of a corporation, does 66.7(10)(j) apply so that the corporation will be deemed to own a percentage share of a resource property that is owned by a partnership that, in turn, is owned by another partnership of which a corporation is a member?
Position: No.
Reasons: Paragraph 66.7(10)(j) applies to deem ownership only of property owned by that partnership of which the corporation is, itself, a member.
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2012-043293
Marc Edelson, LL.B.
March 15, 2012
Dear Sir:
Re: Paragraph 66.7(10)(j) ITA and second-tier partnership
This is in reply to your letter of January 10, 2012 wherein you requested our views regarding the application of paragraph 66.7(10)(j) of the Income Tax Act (Canada) (herein, the "ITA") in the circumstances described below. Unless otherwise stated, all statutory references herein are to the ITA.
You have asked that we consider a situation where a corporation (herein called "Corporation") is a majority partner of a partnership (herein called "P1"). P1 is itself a majority partner of another partnership (herein called "P2"). Accordingly, you have described a tiered-partnership structure.
At the particular time, the Corporation has a positive balance in respect of its cumulative Canadian development expense (herein "CCDE") account, as defined in subsection 66.2(5), and its cumulative foreign resource expense (herein "CFRE") account, as defined in subsection 66.21(1).
At the particular time, P1 owns nothing other than its interest in P2.
At the particular time, P2 owns a "Canadian resource property" and a "foreign resource property", both as defined in subsection 66(15), and earns income from those properties.
Immediately after the particular time, control of Corporation is acquired by an arm's length person such that after that acquisition the Corporation is deemed to be a successor pursuant to paragraph 66.7(10)(c).
Your inquiry asks whether paragraph 66.7(10)(j) can be read to deem Corporation to be a member of both P1 and P2 so that, following the acquisition of control of Corporation, it can be deemed to own a proportionate share of the Canadian resource property and foreign resource property of P2.
Your request appears to relate to a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5 ("IC-70-6R5") dated May 17, 2002. We can, however, provide the following general comments.
Paragraph 66.7(10)(j) refers to the situation where, at the time of the acquisition of control of a corporation, it "was a member of a partnership that owned a Canadian resource property or a foreign resource property". In that case and for certain purposes stated therein, paragraph 66.7(10)(j) deems the corporation to own a specified percentage of the property owned by the partnership at that time.
In our view, paragraph 66.7(10)(j) deems the particular corporation to be the owner of its percentage share of property owned only by the partnership of which the corporation is a member directly. Accordingly, in your situation where Corporation is not a member of P2 itself, paragraph 66.7(10)(j) would not apply to deem Corporation to own any interest in the Canadian resource property or foreign resource property owned by P2 at the time that control of Corporation was acquired.
Yours truly,
Fiona Harrison, C.A.
Manager
Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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