Principal Issues: Application of partnership rules to proposed internal transfer of business into a new partnership for purposes of securing external financing. In particular: 1) Is the Parent Loan additional consideration for the transfer of certain assets? 2) Is the Parent Loan a distribution? 3) Is the Parent Loan part of a series? 4) Does GAAR apply?
Position: 1. No; 2. No; 3. No. 4. No.
Reasons: 1. Taxpayer provided legal opinion supporting that Parent Loan is a loan under XXXXXXXXXX law; FMV of the transferred assets equal to FMV of units acquired; and agreements are on arm's length commercial terms; 2) Parent Loan is a loan under provincial law; Parent Loan is not an amount in lieu of a distribution because LP is a newly formed partnership with no income or capital prior to the Proposed Transactions; no indirect tax benefits achieved; no intention to reduce a capital gain or increase a capital loss; Parent Loan is not a short term loan and therefore our administrative position described in CTF 2022 does not apply; 3) no series because single contribution and loans do not form a series of loans and contributions, and the Proposed Transactions do not artificially or temporarily increase ACB or ARA of a limited partnership interest in respect of the contribution; 4) Assuming a tax benefit and an avoidance transaction, there is no abuse/misuse; the Parent Loan is not a disguised distribution, nor consideration; the Proposed Transactions do not appear to result in an outcome that 97(2), 52(2)(c)(v), 40(3.13) and 96(2.7) seek to prevent or defeat the underlying rationale of those provisions, or circumvent those provisions in a manner that frustrates the OSP of those provisions. There is no deferral of tax or the creation or maintenance of tax attributes (ACB) in a manner that the applicable provisions do not contemplate or that results in a misuse or abuse of such provisions.
