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.
XXXX
M. Vallée
(613) 957-8982
June 4, 1987
Dear Sir:
Re: Request for Technical Interpretation Contribution of Property to a Partnership
This is in reply to your letter, dated March 17, 1987 whereby you request an opinion regarding a contribution of property to a partnership in the following circumstances.
LP is a taxable Canadian corporation that is a Canadian-controlled private corporation within the meaning assigned by paragraph 125(7)(b) of the Act. LP carries on its business in both Canada and the United States. LP wishes to syndicate its business by means of a limited partnership public offering.
GP is a taxable Canadian corporation which is a Canadian-controlled private corporation (within the meaning assigned by paragraph 125(7)(b) of the Act) which is related to LP.
LP transfers one per cent of its business assets to GP in exchange for preferred shares in the capital of GP. An election under subsection 85(1) of the Act is jointly filed by LP and GP in respect of the transfer. The elected amount is equal to the tax cost of the assets.
A limited partnership is initially formed between LP, as the limited partner, and GP, as the general partner. The partnership is registered as a limited partnership under the laws of the state of XXXX
Subsequent to the time of registration, LP and GP unconditionally contribute their business assets to the partnership. LP receives a promissory note and a 99 per cent interest in the partnership in exchange therefor. GP receives a promissory note and a one per cent interest in the partnership in exchange therefor.
A public offering is made pursuant to a prospectus. The prospectus is circulated prior to the day on which LP contributes its business to the partnership, but the offering closes at a subsequent time on the same day on which LP contributes the business.
Upon the closing of the offering, the partnership agreement is amended and restated to provide LP with Class A units representing a 39 per cent interest in the partnership and to provide a nominee corporation with Class B units representing a 60 per cent interest in the partnership. The partnership agreement provided that the partnership would not be terminated by the above-mentioned amendments and it is assumed that there is no disposition of a partnership interest. The Class B units are assigned to the subscribers under the offering in exchange for their cash subscriptions, which are then contributed to the partnership by the nominee corporation. The cash is utilized by the partnership to repay the promissory notes held by LP and GP.
At least one of the subscribers under the offering is not resident in Canada at the time of the closing.
You submit that, if LP and all of the other members of the partnership during the relevant fiscal period (as required under paragraph 96(3)(a) of the Act) so elect in prescribed form and within the time referred to in subsection 96(4) of the Act, the provisions of subsection 97(2) of the Act are applicable to any capital property, Canadian resource property, foreign resource property, eligible capital property and inventory disposed-of by LP to the partnership prior to the time of closing under the offering.
We can provide you with the following general comments concerning the application of paragraph 102(a) and subsection 97(2).
If LP and GP are the only partners of the partnership and are taxable Canadian corporations which are Canadian controlled private corporations within the meaning assigned by paragraph 125(7)(b) of the Act, the partnership qualifies as a "Canadian partnership" under the definition of paragraph 102(a) at that time.
Provided that, immediately after the disposition by LP and GP of their business assets to the partnership, all the partners are resident in Canada, the provisions of subsection 97(2) will be applicable to LP and GP the members of the partnership if they so elect.
However, depending on the circumstances of a specific case, when the lapse of time between the transfer of the business assets and the admission to the partnership of a non-resident member is minimal, the provisions of section 245 could be applicable to deny to the taxpayer the relief provided for in subsection 97(2).
These opinions are of a general nature only and may vary depending on the particular circumstances of a specific case and as stated in paragraph 24 of Information Circular 70-6R, they are not binding on the Department.
We trust these comments will be of assistance to you.
Original signé
par: A. THIBAULT for Director Bilingual Services and Resources Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1987
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© Sa Majesté la Reine du Chef du Canada, 1987
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