13 July 1995 External T.I. 9511305 - 20(1)(E) EXPENSES WHERE CASH BASIS

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues:

	Whether our position stated in 5-909609 in respect of 	expenses paid by a partnership (that uses the cash 	method) for the issuance of interests in the 	partnership still applies?

Position TAKEN:

No

Reasons FOR POSITION TAKEN:

	Proposed changes to 28(1) in April 1995 draft 	legislation.

			5-951130
XXXXXXXXXX		Robert Gagnon

Attention: XXXXXXXXXX

July 13, 1995

Dear Sirs:

Re: Subsection 28(1) of the Act (the "Act")

This is in reply to your letter of April 24, 1995 wherein you requested a technical interpretation concerning subsection 28(1) of the Act.

The Department of Finance released draft legislation to amend the Act on April 26, 1995, which includes proposed amendments to section 28 of the Act. It is proposed that the amendments to section 28 will apply to amounts paid after April 26, 1995, other than amounts paid pursuant to an agreement in writing entered into by the payer on or before April 26, 1995. Provided that the proposed amendments to section 28 are enacted as described in the draft legislation and that the proper elections are made under section 28 of the Act to report income on the cash basis, expenses paid by a partnership in a taxation year in the course of an issuance of interests in the partnership will be deductible as follows:

(1)the amount deductible (under proposed paragraph 28(1)(e)) in the taxation year in which the expenses are paid will be the amount that would be deductible under paragraph 20(1)(e) of the Act for the year and the following taxation year if the income were not computed in accordance with the cash method;

(2)no amount will be deductible in the taxation year following the taxation year in which the expenses are paid;

(3)the amount deductible (under proposed paragraph 20(1)(e.1)) in the third and following taxation years will be the amount that would be deductible under paragraph 20(1)(e) of the Act for each year if the income were not computed in accordance with the cash method.

It is still our position with respect to expenses paid before April 27, 1995 (or after April 26, 1995 pursuant to an agreement in writing entered into by the payer on or before April, 1995) by a partnership in a taxation year in the course of an issuance of interests in the partnership that they are deductible under subsection 28(1) of the Act in the year in which the expenses are paid, provided that the proper elections are made under section 28 of the Act to report income on the cash basis. However, the total deductions in respect of the expenses may not exceed the total deductions that the partnership would have received for that year and any other taxation years under paragraph 20(1)(e) of the Act in respect of the expenses if the partners had not elected to have their income computed in accordance with the cash method.

The foregoing opinion is not a ruling and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, is not binding on the Department.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch