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.
ISSUE SHEET
Question 9 - Two-Tiered Partnerships (1991 Canadian Tax Foundation Roundtable)
Issue
The issue in this question is whether active business income of a partnership (Partnership B) that is allocated to a partner which is itself a partnership (Partnership A) will retain its character as active business income of Partnership A.
Answer
An affirmative answer was given to this question with a cautionary note that the purpose of the two-tier partnership arrangement would have to be reviewed for other tax implications, presumably GAAR.
Discussion
The answer is identical to the position taken in an external opinion dated April 3, 1981 given to 24(1) (file #5-2041) and more recently in an opinion dated January 22, 1990 given to 24(1) (file #5-8451).
The question referred to a statement in part 5 of Question 23 of the 1981 Roundtable that the Department was reviewing problems associated with two-tiered partnerships. Alfred Ho, Rulings Officer examined the MRU research files and the LIB files and discussed the matter with Andre Thibault and determined that there was no study or project commissioned on two-tiered partnerships. See Officer's Analysis prepared by A. Ho.
There are other concerns emanating from two-tiered partnerships pertaining to inventorying of losses (see opinion given to 19(1) dated December 8, 1983) and the deductibility of limited partnership losses (see 1989-1989 correspondence with Finance). However, these are separate issues from the issue under consideration involving the characterization of active business income in a two-tier partnership and the answer given at the 1991 Roundtable is so restricted.
Prepared by: John Chan
May 28, 1992
# 5-921596
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