12 July 1996 External T.I. 9618785 - 34.2 ADDITIONAL INCOME COMPUTATION

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 new partnership with different partners carrying on a similar business is a particular business that is a substituted business for the purposes of section 34.2 when the existing partnership still carries on business but at a reduced level of operations.

Position:

Question of fact.

Reasons:

In the situation where two partnerships are carrying on similar businesses, can one be a substitute for the other?

Where the two partnerships have different partners, can one be the substitute of the other for a particular partner who is a member of both partnerships?

									961878
XXXXXXXXXX							A. Seidel

Attention: XXXXXXXXXX

July 12, 1996

Dear Sirs:

Re: Computation of Additional Business Income

This is in reply to your letter dated May 22, 1996 concerning the computation of additional business income pursuant to then proposed section 34.1 and the reserve for December 31, 1995 income pursuant to proposed section 34.2 of the Notice of Ways and Means Motion released by the Department of Finance on November 27, 1995. We note that these provisions were tabled in the House of Commons as Bill C-36 which received Royal Assent on June 20, 1996 and is now law as S.C. 1996, C.21.

The situation described in your letter appears to relate to specific taxpayers and actual fact situations. 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.

Subsection 34.2(3) of the Income Tax Act (the "Act") provides that a particular business of a taxpayer will include another business substituted for the existing business provided the other requirements of the subsection are otherwise satisfied.

Whether or not a business is a business substituted for a particular business within the meaning of subsection 34.2(3) of the Act would be a question of fact which could only be determined after a review of all of the facts related to a specific situation. The hypothetical situation described in your letter does not provide sufficient facts to enable us to make such a determination.

These comments are provided in accordance with the guidelines set out in paragraph 21 of IC 70-6R2 and are therefore not binding on Revenue Canada.

Yours truly,

for Director
Resources, Partnerships & Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch