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.
XXXXXXXXXX
Dear XXXXXXXXXX
RE: Active Business Assets
This is in reply to your letter of December 29, 1992 asking how a partnership interest would be valued for the purposes of determining corporate assets used in a active business where notes receivable from the corporate partner comprised part of the total assets of the partnership.
It is our view, as stated in paragraph 6 of Interpretation Bulletin IT-486R, dated December 31, 1987, that "where a corporation has a partnership interest as one of its assets, it is the underlying partnership assets (to the extent of the corporation's interest therein) that are used in determining whether all or substantially all of the corporation's assets are used in an active business. Provided that these assets are used in an active business carried on primarily in Canada by the partnership, they will qualify."
Of key importance is that the assets must be used in an active business. The issue of whether property was used or held by a corporation in the course of carrying on a business was considered by the Supreme Court in Ensite Limited v. The Queen, 1986 CTC 459. In that case the court held that the holding or using of property must be linked to some definite obligation or liability of the business. A business purpose for the use of the property is not enough. The test was whether the property was used to fulfil a requirement which had to be met in order to do business. The threshold of the test was met when the withdrawal of the property would "have a decidedly destabilizing effect on the corporate operations themselves".
Whether a particular asset is used in the business is a question of fact. Generally only trade receivables would meet this description in the context of your question.
We trust our comments will be of assistance to you.
Yours truly,
R. Albert for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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