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.
951810
XXXXXXXXXX Cal Brown
(613) 957-8980
Attention: XXXXXXXXXX
December 20, 1995
Dear XXXXXXXXXX:
Re: Technical Interpretation - Proposed paragraph 143.2(7)(a)
This in reply to your letters of July 19, 1995, and December 14, 1995, with respect to the proposed coming into force provision for proposed paragraph 143.2(7)(a) of the Income Tax Act (the "Act").
You require our views on whether "indebtedness" arose before July 1995 pursuant to the terms of an offering memorandum in the following circumstances. If the indebtedness arises before July of 1995 the proposed coming into force provision allows the term of the debt to exceed 10 years for the purposes of determining the application of proposed section 143.2 of the Act.
We understand that an offering memorandum provided for the sale of limited partnership units. The offering was intended to provide funding for several projects in 1995. When a suitable project was arranged the funds necessary to complete the project were estimated and limited partnership units were sold based on the estimate. There was an arrangement in place whereby a bank advanced by way of loan to the investor (limited partner) a portion of the funds necessary to buy the limited partnership units. This structure allowed the parties involved to effectively arrange funding for all the project for a year with one offering memorandum. There were several closings of the offering as specific projects were arranged. This allowed individual projects to proceed while other projects were arranged.
In June of 1995, several projects were under consideration and in view of the pending change in law, it was decided that an offering would be closed before July 1995. However, at the end of June subscription for units exceeded the amount of the projects that were ready for closing. Nevertheless, since other projects where on hand, the bank decided to advance the required funds not only to investors who could invest in a specific project but also to the investor whose subscriptions were temporarily in excess of the projects available but were nevertheless eligible to invest under the terms of the offering memorandum. The investor whose subscriptions were surplus at the end of June 1995 were placed in projects a few months later.
Under the terms of the relevant documents, the bank could decide whether or not to advance the funds by waiving the requirement that a specific project be in place at the time of the loan. This waiver was in fact made before July 1995. Once the funds where advanced there were no circumstances under which the investor's purchase of units could be revoked or the investors obligation under the terms of the loan released as long as a project was arranged before the end of 1995. There were no agreements or arrangements under which the investor's obligations with respect to these arrangements could be changed, reduced or waived if there is a change to the Act or if there is an adverse assessment under the Act. The investor was obligated to pay interest from the time of the advance in June of 1995. All of funds derived from the sale of these units in June of 1995 where used in the manner contemplated by the offering memorandum.
Provided that the coming into force provisions of proposed paragraph 143.2(7)(a) are implemented in the manner set out in the Press Release of the Department of Finance dated December 14, 1995, it is our opinion that the 10 year limit set out in proposed paragraph 143.2)(7)(a) would not apply in the situation described above.
Yours truly,
for Director
Manufacturing Industries,
Partnerships and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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