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.
Dear Sir:
We are responding to your letter of November 20, 1990 in which you requested our interpretation of the tax treatment of the reserve allowed in subsection 32(1) of the Income Tax Act ("the Act") in circumstances where insurance agents are carrying on business in a partnership. You also inquired of the effect of a dissolution of the partnership on the reserve .
As noted in paragraph 2 of Interpretation Bulletin IT-138R it is the Department's view that reserves, including the reserve provided for in subsection 32(1) of the Act must be calculated at the partnership level. As to your point that the lack of reference to subsection 32(1) of the Act in subsection 96(3) of the Act is support that the reserve is to be calculated at the partner level we would note that subsection 96(3) of the Act applies only to those provisions which themselves provide for elections. Therefore as subsection 32(1) of the Act and other reserve provisions such as paragraph 20(1)(1) of Act do not provide for specific elections, it is appropriate that they not be referred to in subsection 96(3) of the Act.
It seems to us that, while paragraph 96(1)(f) of the Act does provide that in computing a partner's income the amount of income of the partnership from a source and the location of such source are to be considered that of the partner, this rule deals only with sources that are specifically enumerated in the Act. Where the source of income is business income we are not, at this point, prepared to accept that paragraph 96(1)(f) of the Act "flows through" or was intended to "flow through" the components of the business income to the partners.
In a situation where a partnership consisting of two insurance brokers is to be dissolved with each of the brokers continuing on as proprietorship it would seem that the lack of a reserve under subsection 32(1) of the Act to the partners following dissolution in respect of commissions received by the partnership would not be an issue where the dissolution is effected such that the provisions of subsections 98(1) and 99(1) of the Act apply. The final fiscal year end of the partnership could effectively be deferred until the partnership has earned all of its commissions.
While we hope our comments are of some assistance to you they do not constitute an advance income tax ruling and therefore are not binding on the Department in respect of a specific situation.
for DirectorFinancial Industries DivisionRulings Directorate
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