27 March 1996 External T.I. 9603995 - MANAGEMENT FEES

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:

Is the use of services partnership acceptable?

Position:

Yes, if partnership carries on a business and no abuse of the Act

Reasons:

Question of fact

									5-960399
XXXXXXXXXX							G. Martineau

Attention: XXXXXXXXXX

March 27, 1996

Dear Sirs:

Re: Management and/or Technical Services Partnerships

This is in reply to your letter of January 15, 1996 wherein you refer to our letter 5-952363 (the "Letter") to you of November 15, 1995.

As stated in the Letter, it is not the Department's practice to determine whether or not subsection 245(2) of the Act would apply to a particular situation without examining all of the relevant facts. Furthermore, your request needs the interpretation of a large number of provisions of the Act which could not be made without an examination of all the relevant documentation. However, the views expressed in our opinion letters 5-8653 and 5-7772 remain applicable.

The Department considers that the use of a services partnership is not unacceptable to the extent the transactions involving such partnership respect the provisions of the Act and that such partnership carries on a bona fide business. Generally, the Department views that a 15% mark-up of the costs of providing the services would not be unreasonable. However, the reasonableness of a fee is a question of fact which can only be determined by a thorough review of the circumstances of each particular situation. Our position stated in answer to question 18 of the Thirty-Seven Canadian Tax Foundation Conference, 1985 Revenue Canada Round Table Questions & Answers would apply in the case of a services partnership.

The above comments reflect an expression of opinion only and are not binding on the Department, as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate