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 corporation and a partnership deal at arm's length, for purposes of paragraph 66(12.66)(d) of the Act, when the general partner is a wholly-owned subsidiary of the corporation.
Position:
Not if CEE will be renounced to the general partner.
Reasons:
If any CEE is to be renounced by the partnership to a member of the partnership that is related to the corporation which incurred the CEE, the corporation and the partnership are deemed not to be dealing at arm's length by virtue of subsection 66(17) of the Act.
953329
XXXXXXXXXX A. Seidel
(613) 957-8974
Attention: XXXXXXXXXX
February 6, 1996
Dear Sirs:
Re: Renunciation of Canadian Exploration Expenses ("CEE")
This is in reply to your facsimile dated December 20, 1995, concerning the application of paragraph 66(12.66)(d) of the Income Tax Act (the "Act").
The situation described in your letter appears to relate to specific taxpayers and an actual fact situation. To the extent that you require assistance in determining the current tax status of the taxpayers involved, you should contact your local Taxation Services Office. To the extent that you require confirmation of the tax consequences of proposed transactions, we bring to your attention Information Circular 70-6R2 ("IC 70-6R2") dated September 28, 1990, and the Special Release thereto dated September 30, 1992, issued by Revenue Canada. Confirmation with respect to proposed transactions involving specific taxpayers should be the subject of a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for particular taxpayers with respect to specific contemplated transactions, a written request for an advance income tax ruling should be submitted in accordance with the Information Circular. Nevertheless, we can provide you with the following general comments with respect to the application of paragraph 66(12.66)(d) of the Act which may be of some assistance.
Subsection 66(12.6) of the Act permits a corporation to renounce CEE that it incurs to a person who acquires flow-through shares issued by the corporation and, pursuant to subsection 66(16) of the Act, a partnership is deemed to be a person for the purposes of subsections 66(12.6) to (12.66) of the Act. Subsection 66(12.66) of the Act permits a corporation to renounce CEE incurred within the first 60 days after a calendar year provided the other requirements of the subsection are satisfied. Paragraph 66(12.66)(d) of the Act requires that the corporation and the person, which includes a partnership, deal with each other at arm's length throughout the 60 days. For the purposes of paragraph 66(12.66)(d) of the Act, subsection 66(17) of the Act deems a corporation and a partnership not to be dealing at arm's length throughout the 60 days after a calendar year in those situations where CEE is renounced by a corporation to a partnership and a share of the CEE will be included in the CEE of a member of the partnership, pursuant to paragraph 66.1(6)(h) of the Act, with whom the corporation does not deal at arm's length.
Accordingly, in the situation where the general partner of a partnership is a wholly-owned subsidiary of the corporation which is renouncing CEE to the partnership and any share of the CEE is included in the CEE of the subsidiary by virtue of paragraph 66.1(6)(h) of the Act, it is our view that the corporation renouncing the CEE and the partnership would not be dealing at arm's length for the purposes of paragraph 66(12.66)(d) of the Act such that the corporation would be unable to renounce to the partnership any of the CEE incurred by it in the first 60 days after a calendar year.
These comments are provided in accordance with the guidelines set out in paragraph 21 of IC 70-6R2.
Yours truly,
for Director
Manufacturing Industries, Partnerships
and Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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