27 March 1990 Ministerial Correspondence 59134 F - Revenue Guarantees Considered Prescribed Benefits for Tax Shelter Purposes

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.

March 27, 1990

Dear Sirs:

Re:  Revenue Guarantees as Prescribed Benefits  for Tax Shelter Reporting Purposes

We are writing in reply to your letter of November 22, 1989, wherein you requested our comments on the amount of a revenue guarantee that would be considered a prescribed benefit for the purposes of the definition of "tax shelter" in subsection 237.1(1) of the Income Tax Act (the "Act").

Facts

Our understanding of the facts given to illustrate the issue is as follows:

24(1)

Your Question

24(1)

Our Comments

While we are unable to provide confirmation of the income tax effects of the particular situation outlined in your letter, we can offer the following general comments related to revenue guarantees referred to in the definition of "prescribed benefit" in subsection 231(6) of the Regulations.

Where a revenue guarantee provided to a limited partnership may reasonably be considered to ensure that a limited partner will receive a return of all or a portion of his outlay in respect of a tax shelter, the amount of such benefit will be considered a prescribed benefit for the purposes of subsection 231(6) of the Regulations.  In the situation where a revenue guarantee ensures that a limited partnership will receive a specified amount of annual gross revenue net of reasonably expected expenses will be distributed to the limited partners, it is our opinion that the amount by which the guaranteed gross revenue exceeds the expected expenses will be distributed to the limited partners, it is our opinion that the amount by which the guaranteed gross revenue net of reasonably expected expenses will be considered a prescribed benefit for purposes of subsection 231(6) of the Regulations. The availability of this excess revenue to the partnership has the effect of ensuring or making certain that the purchaser will receive a return of all or a portion of the purchaser's outlays in respect of a tax shelter, regardless of the gross revenue actually earned by the partnership in carrying out its business operations.

These comments represent our opinion of the law as it applies generally.  As indicated in paragraph 24 of Information Circular 70-6r dated December 18, 1978, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada, Taxation.

We trust these comments will be of assistance.

Yours truly,

for Directorate Business and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch