19 September 1991 Ministerial Letter 91M09128 F - Allocation of Income and Losses of a Partnerhip

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.

QUESTION

24.     Will the Department seek to apply subsection 103(1) of the Act to the allocation of income and losses of a partnership where the partnership agreement provides

(a)  for two different classes of units (Class A and Class B),

(b)  that in year one, all losses and income will be allocated firstly to the Class A partners up to their capital contribution with the balance, if any, allocable to Class B units and that in year two, all losses and income will be allocated to Class B partners up to their capital contribution with the balance, if any, allocable to the Class A units; thereafter, losses and income will be rateably allocated among all units, and

(c)  that losses and income of the partnership that are allocated to holders of units of a particular class are to be allocated among the unit holders pro rata in accordance with their capital contributions?

Answer

24.     It is difficult to give a specific reply to this enquiry because the question of whether a particular allocation would result in the application of subsection 103(1) of the Act would depend on the circumstances of each particular situation. Generally, partnership agreements provide for the sharing of profits and losses on the same basis from year to year. Any deviation from this pattern, as in the above noted example, should be supported by valid reasons. Where the principal reason for the agreed upon allocation may reasonably be considered to be a reduction or postponement of the tax that might otherwise have been or become payable under the Act, the Department would seek to apply the provisions of subsection 103(1) of the Act.