19 January 1996 External T.I. 9528105 - FORGIVEN AMOUNT - 2ND PARTNERSHIP TIER

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 a member of a partnership which in turn is a member of a second partnership is considered to be a partner of the second partnership for the purposes of 80(1)

Position:

No, must be member of debtor partnership

Reasons:

Strict reading of 80(1)(k) "forgiven amount"

		952810
XXXXXXXXXX		C. Tremblay

Attention: XXXXXXXXXX

January 19, 1996

Dear Sirs:

Re: Section 80 - Forgiven Amount

This is in reply to your letter of October 25, 1995, requesting our comments concerning a situation where an amount is forgiven by a corporation that manages an active business of a partnership carried on in Canada. The corporation is a member of a partnership that is in turn a member of the partnership that is the debtor. You ask whether the "forgiven amount", as such term is defined in subsection 80(1) of the Act, to the partnership would be reduced by the principal amount of the debt, pursuant to subparagraph (k) of the definition of "forgiven amount".

The situation that is described appears to involve a series of actual completed transactions involving specific taxpayers; consequently, your questions should be directed to your District Services Taxation Office which has the responsibility of determining the tax consequences of completed transactions and their implications to the specific taxpayers. Although we are unable to provide any opinion in respect of the specific transactions described in your letter, we have set out some general comments which may be of some assistance.

Since a partnership is a relationship between persons carrying on business for profit, the type and extent of a person's involvement in the business of the partnership is relevant in determining whether he is in reality a partner.

The "forgiven amount" definition is nullified in the event that a debtor is an "active" member of a partnership and the obligation has always been payable to an "active" member of a partnership. For this purpose, an "active" member of a partnership is a member of the partnership actively engaged on a regular continuous and substantial basis, in partnership activities (other than the financing of the partnership business).

Where the debtor is a partnership and a corporation is active in the operations of that partnership, but is not a member of that particular partnership, in our view, the provisions of section 80 of the Act are applicable to the debtor partnership. In general, a member of a partnership which in turn is a member of another partnership is not, unless otherwise deemed to be so, a member of the other partnership. Deeming provisions such as subsections 80.04(14) and 125(6.1) are not applicable to the forgiven amount definition in subsection 80(1).

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