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: Is indebtedness owed by a general partnership (some of the members of which are persons not resident in Canada) to a Canadian resident, "specified foreign property" of the Canadian resident within the meaning of paragraph (g) of the definition of that term in subsection 233.3(1) of the Act?
Position: Yes.
Reasons: In the context of applying paragraph (g) of the definition of "specified foreign property" in subsection 233.3(1) of the Act, subsection 96(1) of the Act does not apply and the general partnership is not considered a separate person. In addition, there is no other provision in the Act which deems a partnership to be a separate person for the purposes of paragraph (g) of the definition of "specified foreign property" in subsection 233.3(1) of the Act. Therefore, each of the non-resident partners would be viewed as the debtors in respect of the full amount of the loan for the purposes of applying paragraph (g) of the definition of "specified foreign property" in subsection 233.3(1) of the Act.
February 24, 2014
Ken Anders HEADQUARTERS
Manager Income Tax Rulings
Non-Resident Trust and Foreign Directorate
Investment Entity Section Angelina Argento
International & Large Business Directorate
2013-048446
Loan made by a Canadian resident to a partnership & "specified foreign property"
This is in response to an email sent by Stéphane Charette on April 9, 2013, asking for our comments with respect to whether a loan made by a Canadian resident to a partnership is "specified foreign property" within the meaning of that term in paragraph (g) of subsection 233.3(1) of the Act. Stéphane has asked that we address the response to you.
Facts
In particular, we were asked to assume the following hypothetical facts:
1. The Canadian resident is a "specified Canadian entity" within the meaning of that term in paragraph 233.3(1)(a) of the Act;
2. The Canadian resident owns an interest in a general partnership (the "Partnership");
3. The Partnership was formed or organized under the laws of a country other than Canada and is governed under the laws of that country;
4. Some of the members of the Partnership are persons who are not resident in Canada;
5. None of the exclusions in paragraphs (j) to (q) of the definition of "specified foreign property" in subsection 233.3(1) of the Act apply;
6. The Canadian resident made a loan ("Loan") to the Partnership; and
7. Pursuant to the foreign law under which the Partnership was formed, the provisions of any partnership agreement and the terms and conditions of the Loan, the partners of the Partnership are jointly and severally liable for the debts incurred by the Partnership.
We were not provided with any facts regarding the activities carried on or the assets owned by the Partnership.
Subsection 233.3(3) of the Act requires a "reporting entity" (as that term is defined in subsection 233.3(1)) to file an information return (i.e. Form T1135, Foreign Income Verification Statement), with the Minister of National Revenue. Subsection 233.3(1) of the Act defines a "reporting entity" to be a "specified Canadian entity" (as that term is defined in subsection 233.3(1)) if, at any time (other than a time when the specified Canadian entity is non-resident) in the year, the total of all amounts each of which is the cost amount to the specified Canadian entity of "specified foreign property" (as that term is defined in subsection 233.3(1)) exceeds CAN $100,000. Paragraph (g) of the definition of "specified foreign property" in subsection 233.3(1) of the Act includes in that definition, property of the person that is "indebtedness owed by a non-resident person".
Therefore, the Canadian resident must file Form T1135, Foreign Income Verification Statement, if, at any time in the year, the total of all amounts each of which is the cost amount to the Canadian resident of "specified foreign property" (as that term is defined in subsection 233.3(1)) exceeds CAN $100,000. The issue is whether the Loan represents indebtedness owed (to the Canadian resident) by a non-resident person(s).
As stated in paragraph 2 of Interpretation Bulletin IT-90, a partnership is the relation that subsists between persons carrying on business in common with a view to profit. That statement is in conformity with the common law definition of a partnership. Furthermore, a partnership is not included in the definition of a "person" in subsection 248(1) of the Act. Subsection 96(1) of the Act requires that a partnership be treated as a separate person, but only for computing certain amounts in respect of the partners for the purposes of Part I of the Act. Since, the objective of section 233.3 of the Act is to, in certain circumstances, require a reporting entity to file an information return, the rule in paragraph 96(1)(a) of the Act deeming the partnership to be a person does not apply for the purpose of section 233.3 of the Act. In addition, we note that there is no other provision in the Act which deems the Partnership to be a separate person for the purposes of paragraph (g) of the definition of "specified foreign property" in subsection 233.3(1) of the Act.
As all the partners of the Partnership are jointly and severally liable for the debts incurred by the Partnership, we are of the view that the Loan represents indebtedness owed to the (Canadian resident) by a non-resident person(s) and therefore constitutes "specified foreign property" as defined in subsection 233.3(1) of the Act because for the purposes of paragraph (g) of that definition, each of the partners would be considered to owe the full amount of the indebtedness incurred by the Partnership.
We trust these comments are of assistance.
Olli Laurikainen, CPA, CA
Section Manager
For Division Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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