30 November 1995 Ruling 9625233 - XXXXXXXXXX LIMITED PARTNERSHIP

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:

This is XXXXXXXXXX services limited partnership arrangement. It consists of

XXXXXXXXXX

None of these changes which are meant to deal with the changes in law are relevant with respect to the rulings and opinions given which are considered routine.

Some distinguishing features are that debt is isolated in the XXXXXXXXXX partnership which has an income stream from all services partnership based on the less certain fees..the XXXXXXXXXX fees. The investor is entitled directly to the benefits of the XXXXXXXXXX fee. The other significant change is that XXXXXXXXXX may be required to purchase an interest in the services partnership for fair market value pursuant to a put agreement. Since the put is for fair market value, it does not cause an at-risk problem.

The main issue was the possible application of section 103 because of the allocation of initial losses to the investors rather than the XXXXXXXXXX partnership.

Position:

It was appropriate that the investor be allocated initial losses which were funded by their cash investment. The proposed provisions of act (143.2) do not provide any deductible cost for the expenditures of the service partnership related to debt nor for the partnership interest related to such debt. Consequently there was no expenditures or acb related to the investor's interest in the XXXXXXXXXX partnership. Such cost would only be claimed when the debt was paid. There was also a business reason for the XXXXXXXXXX partnership which allowed participation in XXXXXXXXXX and the partners of the XXXXXXXXXX partnership are a much larger group than the investors in the services partnership. Consequently section 103 does not apply.

The usual rulings and opinions were provided. In addition the opinions that we have provided on 143.2 in the mutual fund commission partnership were added.

XXXXXXXXXX							962523

Attention: XXXXXXXXXX

XXXXXXXXXX, 1996

Re: XXXXXXXXXX
Advance Income Tax Ruling

This is in reply to your request of XXXXXXXXXX as revised by your facsimile transmission of XXXXXXXXXX, for an advance income tax ruling on behalf of:

XXXXXXXXXX

You advise that to the best of your knowledge and that of XXXXXXXXXX and the General Partners:

(a)none of the matters considered in the requested Ruling are being considered by a district tax services office or a taxation centre of Revenue Canada, Customs, Excise and Taxation ("Revenue Canada") in connection with a tax return already filed; and

(b)none of the matters considered in the requested Ruling is under objection or appeal.

Except where specifically otherwise indicated, words and phrases used herein have the same meaning for the purpose of the Ruling as are ascribed to them in the Act. Unless as otherwise stated all references to the Act in this letter are to the Income Tax Act, S.C. 1970-71-72, c. 63 as amended (the "Act").

Any reference to the requested Ruling or any offering document serving to promote the sale of a Unit of XXXXXXXXXX or of a unit of any other XXXXXXXXXX services limited partnership formed by XXXXXXXXXX will include the following wording in capital letters:

XXXXXXXXXX

DEFINITIONS

In addition to the terms previously defined in this letter, the terms set out below have the meanings respectively assigned thereto:

(a)"XXXXXXXXXX Fees", on any date, means fees equal to

XXXXXXXXXX,

converted to Canadian dollars at a fixed rate, but XXXXXXXXXX Fees shall not exceed a maximum amount equal to XXXXXXXXXX% of the aggregate qualifying XXXXXXXXXX expenses of XXXXXXXXXX;

(b)"XXXXXXXXXX Fee" means a fee equal to XXXXXXXXXX% of the aggregate XXXXXXXXXX expenses incurred by XXXXXXXXXX plus interest at a rate of XXXXXXXXXX% compounded annually beginning on or about the first anniversary of the closing date for subscription for units in XXXXXXXXXX and payable

XXXXXXXXXX

(c)"XXXXXXXXXX Fees" means fees calculated, as of each anniversary of the closing date for subscription for Units, in US dollars equal to XXXXXXXXXX% of that proportion of net receipts from the

XXXXXXXXXX

(d)"XXXXXXXXXX Units" means units of limited partnership interest in XXXXXXXXXX

(e) XXXXXXXXXX

(f)"XXXXXXXXXX Units" and "XXXXXXXXXX Units" mean units of limited partnership interest in XXXXXXXXXX designated as Class XXXXXXXXXX Units and Class XXXXXXXXXX Units, respectively.

FACTS AND PROPOSED TRANSACTIONS

The following is a summary of the pertinent facts and the proposed transactions.

A. GENERAL

1.XXXXXXXXXX is a corporation incorporated under the Canada Business Corporations Act. Its principal office is at XXXXXXXXXX. Its district office is XXXXXXXXXX, its Taxation Centre is XXXXXXXXXX and its tax account number is XXXXXXXXXX. XXXXXXXXXX shares are owned as to

XXXXXXXXXX

2.XXXXXXXXXX is in the business of

XXXXXXXXXX

3.Each of XXXXXXXXXX was formed in XXXXXXXXXX pursuant to the Partnership Act, R.S.B.C., 1979, c. 312, as amended. Each of XXXXXXXXXX will apply for a tax shelter identification number. The address of each of XXXXXXXXXX. Its district Tax Services Office is XXXXXXXXXX and its Taxation Centre is XXXXXXXXXX

4.The initial limited partner of each of XXXXXXXXXX, a corporation incorporated under the Company Act (XXXXXXXXXX) with its principal place of business at XXXXXXXXXX. It is a subsidiary wholly-owned corporation of XXXXXXXXXX. Its district Tax Service Office is XXXXXXXXXX and its Taxation Centre is XXXXXXXXXX. It was organized for the purpose of acting as the initial limited partner of a number of limited partnerships, including XXXXXXXXXX

5.The general partner of XXXXXXXXXX, a corporation incorporated under the Company Act (XXXXXXXXXX) and is a subsidiary wholly-owned corporation of XXXXXXXXXX. Its principal office is at XXXXXXXXXX. Its district office is XXXXXXXXXX, and its Taxation Centre is XXXXXXXXXX. The General Partner of XXXXXXXXXX, a corporation incorporated under the Company Act (XXXXXXXXXX) and is a subsidiary wholly-owned corporation of XXXXXXXXXX. It principal office is at XXXXXXXXXX. Its district Tax Services Office is XXXXXXXXXX and it Taxation Center is XXXXXXXXXX

6.XXXXXXXXXX is a corporation incorporated under the laws of the State of Delaware. Its principal office is in XXXXXXXXXX, and its shares are owned by XXXXXXXXXX

7.XXXXXXXXXX is a corporation incorporated under the Company Act (XXXXXXXXXX) with its principal place of business is at XXXXXXXXXX. Its shares are owned as to XXXXXXXXXX, each of whom are Canadian-resident individuals who ultimately are the holders of the shares of XXXXXXXXXX through their respective holding companies.

B. PROPOSED TRANSACTIONS

8.Pursuant to an interim agreement (the "Interim Agreement") among

XXXXXXXXXX

arrangements will be put in place to establish the basic rights and obligations of the parties until formal transaction documents are executed, effective from the date of the Interim Agreement. XXXXXXXXXX will incur XXXXXXXXXX expenses after execution of the Interim Agreement.

9.From the time of execution of the Interim Agreement until the closing date for subscription for Units, XXXXXXXXXX will be funded by way of non-interest bearing interim loans from XXXXXXXXXX. In turn, XXXXXXXXXX will be funded by way of non-interest bearing interim loans from XXXXXXXXXX, to the total amount of XXXXXXXXXX expenses to be incurred by XXXXXXXXXX and, in the case of XXXXXXXXXX, equal to the total amount of XXXXXXXXXX expenses to be incurred by XXXXXXXXXX

10. XXXXXXXXXX

11. XXXXXXXXXX

XXXXXXXXXX

13.The XXXXXXXXXX services of XXXXXXXXXX will be performed by its employees and/or by contractors hired by XXXXXXXXXX

14.The XXXXXXXXXX services to be performed by XXXXXXXXXX will include the

XXXXXXXXXX

15. XXXXXXXXXX

will not be wound-up or amalgamate before it realizes of all of its fees related to the XXXXXXXXXX services.

16.In consideration of the XXXXXXXXXX services by XXXXXXXXXX will agree to pay to XXXXXXXXXX fees determined by reference to the XXXXXXXXXX Such fees will be calculated and paid as follows:

(a)on or before the

XXXXXXXXXX

(b)the XXXXXXXXXX Fee calculated as described above under DEFINITIONS; and

(c)an additional amount, being the XXXXXXXXXX Fees.

XXXXXXXXXX

XXXXXXXXXX

OTHER

38.You advise that:

(a)the amount of expenditures claimed in any fiscal period of XXXXXXXXXX pursuant to generally accepted accounting principles, which require that the expenditures be matched against revenue, will be made on the basis that expenditures are the actual expenditures of XXXXXXXXXX reduced or increased by the application, if any, of proposed section 143.2 of the Act;

(b) fees earned by XXXXXXXXXX will be reported for tax purposes in the fiscal periods in which such fees accrue; and

(c) you will deliver, on or before closing of subscription for units in XXXXXXXXXX, copies of all transaction documents.

PURPOSES OF THE PROPOSED TRANSACTIONS

39.The Proposed Transactions will

XXXXXXXXXX

40. XXXXXXXXXX

RULINGS GIVEN

Provided that the representations of the parties to this ruling request, the statement of Facts, the Proposed Transactions and the purposes thereof, all as described above, are accurate and complete, and provided further that all of the content of all documents are accurately reflected above, and all of the Proposed Transactions are carried out as described above, and that the offering documents or executive summary contain a reference, such as described on page 2 of this letter, in respect of the existence of caveats in the rulings given and provided that XXXXXXXXXX are partnerships at law, we confirm that:

A.The outlays and expenses incurred by XXXXXXXXXX and forming part of the XXXXXXXXXX Expenses will be deductible in computing the income or loss of XXXXXXXXXX for the taxation year in which the outlays and expenses are incurred pursuant to Section 9 of the Act provided that:

(a) such reporting conforms with generally accepted accounting principles in the manner set out in 38 above;

(b) the outlays and expenses are not on account of capital; and

(c) the outlays and expenses are made for the purpose of gaining or producing income from a business with a reasonable expectation of profit.

B.Losses allocated to an Investor by XXXXXXXXXX for a taxation year will be deductible in computing the income or loss of the Investor to the extent of the at-risk amount of the Investor in respect of XXXXXXXXXX at the end of that taxation year;

C.Subject to the application of paragraphs (b), (b.1) and (c) of subsection 96(2.2) of the Act, the at-risk amount, within the meaning of subsection 96(2.2) of the Act, of an Investor in XXXXXXXXXX, at the end of the XXXXXXXXXX taxation year of XXXXXXXXXX, will be equal to the amount of the Investor's investment in the XXXXXXXXXX Units, to the extent that the Investor, or a person with whom the Investor does not deal at arm's length, does not receive or obtain any amount or benefit referred to in paragraph 96(2.2)(d) of the Act other than an amount or benefit excluded by virtue of one of subparagraphs (i) to (vii) of that paragraph;

D.Subject to the application of 18(9) of the Act, interest paid in a taxation year or payable in respect of a taxation year by an Investor (depending upon the method regularly followed by the Investor in computing income) in connection with Investment Loan will be deductible in computing income in that taxation year in accordance with paragraph 20(1)(c) of the Act to the extent that the amount thereof is reasonable and paid pursuant to a legal obligation to pay interest on borrowed money used for the purpose of earning income from a business or property with a reasonable expectation of profit.

E.Provided the security arrangements, as described in 27 above, in respect of the Investment Loans and any other related documents do not result in an amount received as referred to in subparagraph 53(2)(c)(v) of the Act, such security arrangements will neither constitute a distribution of partnership profits to the Investors nor a withdrawal of, partnership capital by the Investors, within the meaning of 53(2)(c)(v) of the Act.

These rulings relate only to the proposed transactions described above and are given subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990, as amended by Special Release dated September 30, 1992, issued by Revenue Canada and are binding, provided that the proposed transactions are completed on or before XXXXXXXXXX

These rulings are based on the Act and the Regulations as of the date hereof without taking into account any future amendments thereto, whether currently proposed or not. Furthermore, these rulings are also based on our understanding the documents and agreements with respect to these facts and proposals will, when finalized, be in accordance with the facts and proposals set out above. A material difference between the final wording of one of these documents and facts and proposals as set out above will affect the rulings given.

Furthermore, nothing in this letter should be interpreted as confirming, either expressly or implicitly;

the reasonableness of XXXXXXXXXX Expenses;

the proper generally accepted accounting principle applicable in the determination of the timing of the deduction of any of the XXXXXXXXXX Expenses;

the existence of a reasonable expectation of profit of XXXXXXXXXX or the Investor;

the applicability or non applicability of paragraph 96(2.2)(d) of the Act;

any cost or fair market value of any asset referred to in this letter;

the applicability or non applicability of subsection 245(2) of the Act;

the merits of any comment made in the offering documents with respect to the tax implications of the proposed transactions;

(h)the GST implications of any of the proposed transactions; and

(i)any other tax consequences of the proposed transactions described herein or of related transactions or events that are not described herein.

COMMENTS

The views expressed below are opinions, and consequently are not binding on the Department.

While we do not rule on questions of fact, given the current state of the law, i.e., the decision of the Federal Court Trial Division in the case of Asamera Oil (Indonesia) Limited v. The Queen (73 DTC 5274) and provided that the facts and proposed transactions do not change in any material fashion and that the proposed transactions are carried out by XXXXXXXXXX, it is our opinion that salaries, wages, rent, supplies and other expenses which are normally current in nature and are incurred by XXXXXXXXXX would not be considered as incurred on capital account;

2.It is our opinion that if any amount of gross revenue related to XXXXXXXXXX is ascertainable, whether contingent or otherwise, at the time that the Investor acquires a unit of XXXXXXXXXX this would affect the at-risk amount.

3.It is our opinion that the payment or partial payment by an Investor in the units of the Offering Partnership by way of post dated cheque will have the effect of reducing the at-risk amount by virtue of paragraph 96(2.2)(c) of the Act.

4.(a)Notwithstanding the Rulings given in this letter, if the provisions of draft section 143.2 of the Act are enacted as proposed in the Notice of Ways and Means Motion tabled on June 20, 1996, by the Minister of Finance, it is our opinion that the amount of any expenditures made by XXXXXXXXXX including, but not limited to, XXXXXXXXXX Expenses and the issuance expenditures, would be reduced by the total of

		the "limited-recourse amounts" of

			XXXXXXXXXX and

			all taxpayers not dealing at arm's length with XXXXXXXXXX

that can reasonably be considered to relate to the particular expenditures,

		XXXXXXXXXX "at-risk adjustment" in respect of the particular expenditures, and

		the limited-recourse amounts and at-risk adjustments of each taxpayer who deals at arm's length with and holds an interest in XXXXXXXXXX that can reasonably be considered to relate to the particular expenditures.

(b)For greater certainty, if draft section 143.2 of the Act is enacted as proposed in the Notice of Ways and Means Motion tabled on June 20, 1996, by the Minister of Finance, and if any Investor has limited-recourse amounts that can reasonably be considered to relate to the acquisition of Units, it is our opinion that:

(i) draft subsection 143.2(6) of the Act (not subparagraph 53(2)(c)(i.3)) would apply to reduce that Investor's cost of the Units, and

(ii) the expenditures made by XXXXXXXXXX would also be considered to relate to those limited-recourse amounts and would be reduced by the total of such limited-recourse amounts.

(c)If draft section 143.2 of the Act is enacted as proposed in the Notice of Ways and Means Motion tabled on June 20, 1996, by the Minister of Finance, and any indebtedness of XXXXXXXXXX is considered to be a limited-recourse amount so as to reduce the amount of any expenditure of the Partnership that would otherwise be deductible in computing its income, it is our opinion that if a repayment of such borrowing is not part of a series of loans or other indebtedness and repayments by the Partnership, the repayment at any time by the these partnerships of such indebtedness will, pursuant to subsection 143.2(9) of the Act, result in the said expenditure being deemed to have been made or incurred at that time to the extent of the amount of the repayment.

(d)If draft section 143.2 of the Act is enacted as proposed in the Notice of Ways and Means Motion tabled on June 20, 1996, by the Minister of Finance, subsection 143.2(6) of the Act will not be applied to reduce the amount of Investor's expenditure to acquire Units:

(i)by reason of the distribution of capital by XXXXXXXXXX to XXXXXXXXXX Units as described above in paragraphs 17 and 18, or

(ii) by reason of XXXXXXXXXX entitlement to the Fees payable as described above in 17 and 18.

Yours truly,

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

Attachment