31 January 1996 External T.I. 9519465 - LIMITED RECOURSE FINANCING

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:

Interpretation of proposed 143.2 as it relates to certain scenarios submitted. Determining the limited recourse amounts and whether the "expenditure" in respect of property acquired by a partnership would be the cost for capital cost allowance and capital gains purposes.

Position:

Opinion given in respect of the application of relevant provisions under section 143.2 as they relate to taxpayers, including partnerships, in general.

Reasons:

Standard general opinions given for code 5's. Situations may be proposed transactions.

XXXXXXXXXX						951946

Attention: XXXXXXXXXX

January 31, 1996

Dear Sirs:

Re: Proposed Section 143.2 of the Income Tax Act (the "Act")

This is in reply to your letter dated July 23, 1995, requesting a technical interpretation of proposed section 143.2 of the Act as it relates to certain situations outlined in your letter. We apologize for the delay in responding.

As stated in paragraphs 21 and 22 of Information Circular 70-6R2, the Rulings Directorate provides written opinions on the interpretation of specific provisions of the law or proposed legislation. However, the Directorate does not provide any opinion that relates to a contemplated transaction. For such transactions, an advance income tax ruling should be requested. We are prepared, however, to offer the following general comments:

1.In the case of two-tier limited partnerships, any debt of either limited partnership will be a limited recourse amount and, consequently, would reduce the cost or capital cost of property of the partnership, for the purposes of section 143.2 of the Act.

2.Where a limited partner does not deal at arm's length with a partnership, any debt that is a limited recourse amount of the partnership or the limited partner would reduce each other's expenditure that is an expense or the cost or capital cost of property to which the limited recourse amount can reasonably be considered to relate.

3.Also, where a taxpayer acquires an interest indirectly in a partnership, through another partnership, that is a tax shelter investment, it is our view that an indebtedness of any of the parties would be considered to be related to an expenditure incurred by any of them where the parties were privy to the transactions giving rise to the indebtedness at the time in which the expenditure was incurred.

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