9 November 1982 Income Tax Severed Letter 95-4418 F

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 Sirs:

This is in reply to your letter of September 17, 1982 in which you required about the application of subsection 15(2) of the Income Tax Act.

The facts as described by you are as follows:

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It is our view that the U.S. partnership is a person for the purpose of subsection 15(2), as indicated in Interpretation Bulletin IT-119R2, paragraph 5. The partnership is connected with the shareholders of the particular corporation who are members of the partnership under the definition of persons connected with a shareholder in subsection 15(2.1). Accordingly, subsection 15(2) will apply to the U. S. partnership provided of course that the subsection is otherwise applicable. On the other hand, if it can be demonstrated that notwithstanding the entries in the U.S. partnership's books, that the corporation resident in Canada made loans to the partnerships acting in their capacity as shareholders, then subsection 15(2) could be applied directly to the non-resident shareholders.

Furthermore, although you did not ask for this, the amount included in income of the U. S. partnership or the non-resident shareholders pursuant to subsection 15(2) would be subject to withholding tax under Part XIII, subject to the overriding provisions of the Canada-U.S. Tax convention, by virtue of the provisions of paragraphs 212(13.1)(b) and 214(3)(a) and subsection 212(2) of the Income Tax Act.