4 June 1997 External T.I. 9712385 - FI & LOOKING-THROUGH A 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:

When applying the "all or substantially all" test of paragraph 8604(a) of the regulations do we look through a corporate interest in a partnership to the assets of the partnership.

Position TAKEN:

No.

Reasons FOR POSITION TAKEN:

The wording refers to assets of a corporation that are shares or indebtedness of financial institutions. Where shares or indebtedness are held by a partnership the corporate asset is the partnership interest. A look-through rule would require specific legislation such as found in paragraph 181.2(3)(g) and 181.3(1)(b)

	                                    	971238
XXXXXXXXXX			                                   G. Donell

Attention: XXXXXXXXXX

June 4, 1997

Dear Sirs:

Re: "Financial Institution" defined for the purposes of Part I.3 and VI of the Income Tax Act (the "Act")

This is in reply to your facsimile of May 9, 1997 in which you requested a technical interpretation of the definition of a "Financial Institution" ("FI") for the purposes of both Parts I.3 and VI of the Act.

You have asked us whether a corporation meets the definition of a FI in both subsections 181(1) and 190(1) for the purpose of both Part I.3 and VI of the Act respectively where its sole asset is an interest in a partnership. The assets of the partnership consist of shares or indebtedness of FIs that are related to the subsidiary.

Subsection 181(1) of the Act defines a FI for the purpose of Part I.3 to include, at paragraph (g) thereof, a prescribed corporation. Paragraph 8604(a) of the Income Tax Regulations (the "Regulations") provides that a prescribed corporation includes a corporation "...of which all or substantially all of the assets are shares or indebtedness of FIs...to which the corporation is related;". Subsection 190(1) of the Act defines a FI for the purpose of Part VI and contains, at paragraph (e) thereof, wording similar to that of paragraph 8604(a) of the Regulations.

Both provisions refer to assets of the corporation that are shares or indebtedness of related FIs. It is our view that, without specific legislation such as that of either of paragraphs 181.2(3)(g) and 181.3(1)(b), the only "asset of the corporation" in the situation you have described is the interest in a partnership. Accordingly, assuming that the corporation would not otherwise meet the requirements of the respective definitions of a FI, the corporation would not be a FI for purposes of either of Parts I.3 and VI.

In the hypothetical situation you describe it is not clear what the business reason would be in having a partnership hold investments in a related FI. In this regard if a main purpose for this structure is avoidance of Part I.3 or Part VI tax that would otherwise be exigible by the corporate partners section 245 of the Act may have application.

Yours truly,

for Director
Financial Industries Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch