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 127(8.4) election is available in the case of a partnership with no specified members (i.e., a general partnership).
Position: No.
Reasons: To qualify, amounts must be required to be added to partners' ITC pursuant to both 127(8) and (8.3). If no specified members, (8.3) is not applicable.
February 5, 1998
Audit Directorate Income Tax Rulings
Specialized Compliance and Interpretations
Enhancement Division Directorate
B. G. Dodd
Mel Machado 957-8954
Tax Incentive Audit Section
964201
Subsection 127(8.4) of the Income Tax Act (the "Act")
We are writing in reply to your memorandum dated December 18, 1996 requesting our views on the question of whether subsection 127(8.4) of the Act can apply in the case of a general partnership. We also acknowledge the accompanying memorandum dated December 11, 1996 from the Calgary TSO and the November 27, 1996 submission from the law firm of XXXXXXXXXX.
For certain purposes of the provisions discussed below, it is relevant whether a member of a partnership is a "specified member", which term is defined in subsection 248(1) of the Act and includes, among other things, a limited partner. With respect to the reference to a general partnership, it is our understanding that, more specifically, the partnership in question is one which has no specified members.
Subsection 127(8.4) of the Act provides that where an amount is required to be added "pursuant to subsections (8) and (8.3)" to the investment tax credit ("ITC") for the year of a member of a partnership, the member may elect to have any portion of that amount deemed not to have been required to be added in computing the member's ITC for the year. The issue is, in the case of a partnership which has no specified members, whether there is an amount required to be added to a member's ITC "pursuant to subsections (8) and (8.3)".
With respect to subsection 127(8) of the Act, this is the general rule for the computation of the ITC of a taxpayer who is a member of a partnership. This provides that the ITC is to be computed at the partnership level based on amounts that, under certain specified assumptions, would be determined under paragraphs (a), (a.1), (b) and (e.1) of the definition of "investment tax credit" in subsection 127(9) of the Act. The portion thereof that can reasonably be considered to relate to each partner's share thereof is required to be added in determining the partner's ITC at the end of the year. This amount may be modified pursuant to subsections 127(8.1), (8.2) and (8.3) of the Act where there are limited partners involved.
Subsection 127(8.3) of the Act provides for a reallocation, to members who were not limited partners, of the relevant portion of the amount by which
(a) the amount determined under subsection 127(8) as the ITC at the partnership level
exceeds
(b) the amounts determined under subsections 127(8) and (8.1) to be a limited partner's share of that amount.
In the case of a partnership in which there are no specified members (and, therefore, no limited partners), subsection 127(8.3) of the Act does not apply to require an amount to be added in computing a member's ITC for the year - only subsection 127(8) applies to require such an addition. In such a case, it cannot be said that an amount is required to be added in computing a member's ITC for the year pursuant to subsections 127(8) and (8.3) of the Act. It is, therefore, our view that subsection 127(8.4) of the Act is not applicable in the case of a partnership in which there are no specified members.
We are unaware of any tax policy reasons for the unavailability of the election in subsection 127(8.4) of the Act in the case of a partnership without specified members (e.g., a general partnership). We discussed the matter informally with the Department of Finance which agreed with our interpretation.
We hope this will be of assistance.
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
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