15 November 1995 External T.I. 9523635 - MANAGEMENT SERVICES PARTNERSHIP

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:

GAAR and Partnership Services

Position:

Question of fact

Reasons:

		5-952363
XXXXXXXXXX		G. Martineau

Attention: XXXXXXXXXX

November 15, 1995

Dear Sir/Madam:

Re: Management and/or Technical Services Partnerships

This is in reply to your letter of August 30, 1995 in respect of management and/or technical services partnership established to perform management and/or technical, administrative and leasing services for professional practices. The partners of the service partnership would be persons not dealing at arm's length with the professional practitioners who could choose to be partners.

It appears that your enquiry relates to specific transactions, either proposed or completed. Where a transaction is proposed, confirmation of the tax implications arising therefrom should be sought by way of an advance ruling request submitted in the manner set out in Information Circular 70-6R2. Where a completed transaction is involved, the enquiry should be addressed to the relevant Tax Services Office. We offer, however, the following general comments.

In order to determine whether or not subsection 245(2) of the Act would apply to a particular situation, we would have to examine all of the relevant facts of the particular situation. Since all the relevant facts of a particular situation can only be disclosed in the context of an advance tax ruling, we are not able to express an opinion as to whether or not subsection 245(2) of the Act would apply to the situations described in your letter and we are only prepared to give a definitive response in the context of an advance tax ruling.

We would assume that a services partnership would be created mainly to obtain tax benefits and would be considered as an avoidance transaction as defined pursuant to subsection 245(3) of the Act. However, pursuant to subsection 245(4) of the Act, subsection 245(2) of the Act would not apply to a transaction if it may reasonably be considered that the transaction would not result directly or indirectly in a misuse of the provisions of the Act or an abuse having regard to the provisions of the Act read as a whole.

Whether or not the general anti-avoidance provisions might apply, there may be other provisions in the Act which could apply. For instance, the amount of the service fee must be reasonable in the circumstances as stipulated under section 67 of the Act and might be subject to section 69 of the Act. The Act contains specific provisions which deal with the splitting of income between family members and other persons.

Generally, subsection 245(2) of the Act might not apply where a services partnership does not avoid one or more of the specific provisions mentioned above.

The above comments are an expression of opinion only and are not binding on the Department; nevertheless we hope this will be of assistance.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate