14 August 1990 Ruling 74771 F - Benefit to a Partnership

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.

Subsection 15(2) Benefit to a Partnership

This is in reply to your memorandum of February 23, 1990 concerning the assessment of a benefit under subsection 15(2) of the act to a partnership. We apologize for the delay in responding to you.

In the fact situation you described,

24(1)

You further stated that  24(1)

Your view

It is your contention that  24(1)

Our comments

In addressing your question, we presume that neither paragraph 15(2)(a) nor (b) of the Act operates to exempt the loan.

Whether a partner deals at arm's length with a partnership at a particular time is a question of fact pursuant to paragraph 251(1)(b) of the Act, since there is no general deeming provision in the Act to deem the partner to be related to a partnership. This is true even in the case of a partner who controls a partnership.  However, where there is such control, there is a presumption that such partner deals at non-arm's length with the partnership.  Similarly, where the partner acts in concert with another partner to control a partnership, those partners would be viewed as dealing non-arm's length with the partnership.

When one considers that a partnership is a relationship between persons acting together in common with a view to profit, one might conclude that all partners probably deal with their partnership in a non-arm's length manner. However, paragraph 15 of Interpretation Bulletin IT-419 states that were a partner is not in a position to control a partnership AND he has little or no say in directing the operations of the partnership, the Department is prepared to recognize that partner MAY deal at arm's length with the partnership. A comment in paragraph 19 of IT-419 may be instructive even though it deals with shareholders and corporations. In the last sentence thereof, it is stated that a minority shareholder's involvement in the direct management of a corporation may be relevant in assessing his relationship with the corporation. In the partnership setting, the partner's involvement in the partnership's direct management would be a factor to consider.

As a starting point, it is reasonable to presume that the fewer the number of partners, the greater the likelihood that the partners do not deal with the partnership at arm's length. The final determination can only be made upon a review of the relevant factors. Some questions that come to mind that bear on this issue are outlined below:

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In conclusion, it is not necessary for a person to control or be in a position to control a partnership before he can be considered to be dealing non-arm's length with that partnership. When control by a person or group of persons is lacking, one must consider other factors.

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch