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.
Would certain representations and indemnities given by a vendor of general partnership units be "amounts or benefits" the purchaser is entitled to receive or obtain as described in paragraph 96(2.2)(d) with the consequence that the partner would be treated as a limited partner by reason of paragraph 96(2.4)(b)?
No firm position taken. Write in for a ruling on a live deal, if desired.
Question of fact. Need more details to comment.
XXXXXXXXXX Allan Nelson
August 30, 1996
Re: Technical Opinion Request
Interpretation of Paragraph 96(2.2)(d)
This is in reply to your letter dated March 20, 1996, in which you requested our opinion as to whether certain representations and warranties would be considered "amounts or benefits" as described in 96(2.2)(d) of the Act.
You describe a scenario where taxpayers may acquire interests in general partnerships that operate cogeneration power facilities from the existing partners under a private purchase agreement, as negotiated by the sellers and purchasers. The purchasers may receive certain tax representations and indemnities (the "Representations & Indemnities") as covenants from the sellers, along the following lines:
(a) that certain property of the partnerships is Class 34 (or Class 43) property with a specific capital cost and certain advantageous depreciation rates; and
(b)that the aggregate undepreciated capital cost of each class of the partnership's depreciable property, including its Class 34 (or Class 43) property, is not less than a specified amount.
You have asked us to comment as to whether the Representations & Indemnities would be considered "amounts or benefits" that the purchaser is entitled to receive or obtain as described in paragraph 96(2.2)(d) with the consequence that the purchaser would be treated as a limited partner by reason of paragraph 96(2.4)(b) of the Act.
From the description of facts in your letter, it appears you are referring to a contemplated transaction. As noted in paragraph 21 of Information Circular 70-6R2, this is more properly the subject of an advance ruling rather than an opinion.
In addition, it is a question of fact whether the Representations & Indemnities would be "amounts or benefits" as described in paragraph 96(2.2)(d) and alternatively whether they would be "amounts or benefits" for the purposes of the at-risk adjustment in draft subsection 143.2(2) of the Act. A determination of this question would require a thorough review of all the available facts, which we do not have. With this in mind we are unable to comment further on this matter.
We would be pleased to consider this matter further, should you wish to submit a request for an advance income tax ruling.
and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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