19 June 1990 Internal T.I. 74779 F - Non-capital Losses & RRSP Contributions

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.

SUBJECT:  Renounced Resource Expenses creating Non-Capital Losses & RRSP Contributions

Resource Expense Deduction

This is in response to your memorandum dated February 26, 1990, concerning the above-mentioned topics.

FACTS

24(1)

Your query was whether a limited partner who was allocated CEE  which the limited partnership obtained from flaw-through shares, could deduct such CEE against his income from business or property at the stage of calculating income contemplated by paragraph 3(a); alternatively, must such deduction be taken at the stage of the  calculation of income contemplated by paragraph 3(c)?  You also requested whether the deduction of CEE affected the taxpayers RRSP deduction for the year?

Rulings Opinion - CEE creating a Non-Capital Loss

Flow-through shares held by a limited partnership constitute a source of income that is from a business or property for purposes of a limited partner claiming amounts allocated to him of expenses renounced to the limited partnership under the flow-through share provisions of the Act.  Any CEE renounced to a limited partnership and allocated to the limited partner may be claimed by him in computing his income for a year from a business or property pursuant to paragraph 3(a) of the Act.

As you seated in the Addendum to your letter of February 26, 1990, a deduction permitted under paragraph 3(c) cannot be taken if that deduction fits the exception found in that paragraph.  24(1)

If a taxpayer incurs CEE which cannot be sourced to a business or property at the time it is incurred, such CEE may be deducted at the stage in the calculation of income contemplated by paragraph 3(c) of the Act.

RRSP CONTRIBUTION

A taxpayer is subject to a maximum RRSP deduction limit as determined pursuant to subsection 146(5) of the Act.  An employee who is not and will not become entitled to benefits under a pension plan or deferred profit sharing plan has a RRSP deduction limit which is amongst other things, subject to the lesser of $7,500 and 20%, of his Earned Income for that taxation year.  The term "Earned Income" is defined at paragraph 146(1)(c) of the Act.

It is our opinion that any CEE allocated to a limited partner by a limited partnership and deducted by him in computing his income for a taxation year would not form part of his losses as "a partner actively engaged in the business" pursuant to subparagraph 146(1)(c)(v).  Accordingly, any such CEE deduction which he benefited from in that taxation year would not enter into his Earned Income calculation, and would not affect his RRSP deduction in that year.

ChiefResource Industries SectionBilingual Service and Resource Industries DivisionRulings Directorate