29 December 1989 Ruling 8413 F - CCA Half-year Rule - Exception for Property Acquired In Non-arm's Length Transactions Involving Partnerships

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.

Document No.:     5

December 29, 1989

Dear Sirs:

Re:  Amendments to subsections 1100(2.2) and 1102(14) of the Income Tax Regulations

We are writing in reply to your letter of July 21, 1989 regarding proposed amendments to subsections 1100(2.2) and 1102(14) of the Income Tax Regulations (the "Regulations").  In the letter, you state that, the use of the words "from a person with whom the taxpayer was not dealing at arm's length ... at the time the property was acquired" creates some uncertainty in situations involving the transfer of depreciable assets to or from a partnership.  You have requested that we confirm that a non-arm's length transfer of depreciable property between a partnership and another entity, including a second partnership, would meet the exempting provisions of subsections 1110(2.2) and 1102(14) of the Regulations.  In addition, you have requested our comments as to whether the statement in paragraph 15 of Interpretation Bulletin IT-419 that,

     "In situations where one partner is in a position to control a partnership, either through ownership of a controlling interest or through a mandate vested in him by his partners, the Department considers such person not to be dealing at arm's length with that partnership."

would extend to situations where one partnership is in a position to control another partnership.

Our Comments

1)     In our opinion, a partnership may be considered to be a person and a taxpayer for the purposes of subsections 1100(2.2) and 1102(14) of the Regulations.  As such, a non-arms length transfer of depreciable property between a partnership and another entity, would not fail to meet the requirements of the exempting provisions in subsections 110(2.2) or 1102(14) of the Regulations solely on the basis that the transactions occurred between a partnership and another entity including a second partnership.  This opinion is based on the wording in subsections 96(1) of the Income Tax Act (the "Act"), subsection 96(1) of the Act requires a taxpayer who is a member of a partnership to compute his income as if the partnership were a separate person resident in Canada.  As the definition of "taxpayer" in subsection 248(1) of the Act includes any person whether or not liable to pay tax, an individual would also compute his income as if the partnership were a taxpayer.

2)     Whether one partnership is dealing at arm's length with another partnership is a question of fact.  It is necessary to consider not only the relationship between the partnerships but also the relationships of the carious partners who control the partnerships in order to made a determination.  However, where one partnership is in a position to control another partnership we would generally consider them not to deal at arm's length unless there was evidence to the contrary.

In summary, while in our opinion subsections 1100(2.2) and 1102(14) of the Regulations would generally apply where a partnership transfers depreciable property to another non-arm's length entity, it would be necessary to examine the pertinent facts of each situation in order to determine whether the subsections applied.

We trust that our comments will be of assistance.

for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch