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.
PRINCIPAL ISSUES:
WHETHER AN INVESTMENT ALLOWANCE IS ALLOWED TO A CORPORATE LENDER FOR A LOAN TO A PARTNERSHIP WHERE ALL PARTNERS ARE NOT QUALIFYING CORPORATIONS (Paragraph 181.2(4)(d.1))
POSITION TAKEN:
LEGISLATION CLEAR. ALL PARTNERS MUST BE CORPORATIONS. ANYTHING LESS PRECLUDES AN INVESTMENT ALLOWANCE.
REASONS FOR POSITION TAKEN:
LEGISLATION REFERS TO "ALL MEMBERS".
LEGAL:
N/A
FINANCE OPINION:
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JURISPRUDENCE:
N/A
RCT PUBLICATIONS:
N/A
HAA NUMBER:
HAA 5638-3
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Attention: XXXXXXXXXX
Dear Sirs:
RE: Subsection 181.2(4) of the Income Tax Act
This is in reply to your letter dated November 12, 1993 in which you requested a technical interpretation concerning the application of the investment allowance component of Part I.3 tax to a situation where a loan has been advanced by a corporation to a partnership in which all members except one are corporations. We apologize for the delay of our response.
In your letter you state that the application of paragraphs 181.2(3)(g) and 181.2(4)(d.1) of the Income Tax Act produce unfair results where the borrower is a partnership consisting of less than 100% qualifying corporate members. Specifically you correctly allude to the fact that the pro-rata capital component of the partnership loans must be reported as capital by corporate partners whereas the loan will fail to qualify as an investment allowance to the corporate lender simply because of the existence of an individual partner. You have asked us to reconsider our administrative practice and allow an investment allowance equal to the capital calculation of the corporate partners that relate to the borrowing. Paragraph 181.2(4)(d.1) of the Income Tax Act specifically uses the words "...all of the members..." to describe acceptable attributes of the borrowing partnership. The concise Oxford dictionary defines "all" as, "the entire number...", "every one of...", and "the whole amount". There is no element built into such wording that would allow us to exercise the administrative flexibility you have requested. Accordingly, without legislative authority we are unable to accede to your request to permit an investment allowance with respect to any portion of the loan made by the corporate lender in the circumstances described above.
You may wish to write to the Department of Finance about your policy concerns should you wish to pursue this matter further. We trust the above comments will be of assistance to you.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate
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