18 September 1995 External T.I. 9518995 - LIMITED RECOURSE AMOUNTS

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.

XXXXXXXXXX 951899

Attention: XXXXXXXXXX

September 18, 1995

Dear Sirs:

This is in reply to your letter dated July 20, 1995, concerning proposed section 143.2 of the Income Tax Act with respect to limited recourse debt as it applies to trade payables.

You indicated that trade payables incurred in the ordinary course of operations by a partnership appear to fall within the ambit of the limited recourse provisions described above and that where ordinary course expenditures have been accrued but not paid by the partnership's fiscal year end, it appears that their deduction may be precluded until the time the payables are, in fact, paid.

Every situation must be considered on the basis of the facts of the particular situation and without specific details of the situation, we are prepared to offer only the following general comments:

Due to the broad nature of the provisions under proposed section 143.2 of the Act, we agree that a trade payable could be a "limited recourse amount" as the term is defined under subsection 143.2(1) and also could be deemed to be a limited recourse amount for the purposes of subsections 143.2(7) and (8) of the Act. As a result, an expenditure incurred by a partnership, an interest in which is a tax shelter investment, that gives rise to a trade payable could be reduced by the amount of the trade payable under proposed subsection 143.2(6) of the Act.

It is our view that both subsections 143.2(7) and (8) of the Act may apply in a particular scenario even though both provisions are two separate tests in determining whether or not an unpaid indebtedness is a limited recourse amount. A taxpayer would not have a limited recourse amount where the taxpayer meets the requirements of subsection 143.2(7) of the Act. However, the taxpayer may still be deemed to have a limited recourse amount if the taxpayer is subject to the application of subsection 143.2(8) of the Act. It is a question of fact which depends on the circumstances of the particular case.

Also, we agree that a trade payable of a taxpayer that was considered to be a limited recourse amount would only be an "expenditure" incurred by the taxpayer, for tax purposes, at the time and to the extent of the repayment thereof other than a repayment from the use of another limited recourse amount.

These comments represent an opinion based on our interpretation of the proposed law described above as it will apply generally, if enacted as proposed. They may, however, not always be appropriate in the circumstances of a particular case. As indicated in paragraph 21 of Information Circular 70-6R2, this opinion is not a ruling and, accordingly, it is not binding on Revenue Canada, Taxation.

Yours truly,

for Director
Manufacturing Industries,
Partnerships and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch