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.
Whether 20(1)(e) deduction available to an investor who purchases an interest in a real estate syndicate where the expenses relate to pre-syndicate costs.
20(1)(e)(i) deduction available only to the "taxpayer" (e.g., syndicate, partnership, unit trust) that is offering its units or interests to the public; it is not available to the member of the public that purchases the unit or interest.
XXXXXXXXXX P. Spice
September 26, 1997
Re: Subparagraph 20(1)(e)(i) of the Income Tax Act (the "Act")
This is in reply to your letter of September 15, 1997, concerning the availability of the above-noted deduction to an investor in a real estate syndicate. In particular, you ask whether amounts expended before the syndicate is formed can be deducted by an individual who purchases an interest in the syndicate. The expenses relate to the offering of the interests to the public and are charged by a person for its services in negotiating the purchase of the property, arranging the financing, and marketing the interests. You refer to the case of Samuel J. Besse v. The Queen 95 DTC 5208 which held that a MURB investor was not entitled to deduct costs pursuant to paragraph 20(1)(e) of the Act with respect to costs incurred before the syndicate was formed and before the investor acquired an interest in the MURB.
In our view the deduction under subparagraph 20(1)(e)(i) of the Act is clearly only available with respect to costs incurred "by the syndicate" taxpayer and is not available to an investor who purchases an interest in the syndicate. This interpretation is supported by the Besse case and by the following words from the Notice of Ways and Means Motion relating to the proposed paragraph 20(1)(e) when it was announced in 1979:
That ... a unit trust, partnership or syndicate be permitted to deduct expenses incurred after November 16, 1978 in the course of issuing an interest therein.
You also ask whether a deduction under paragraph 20(1)(e) of the Act is available to the limited partners of a limited partnership which is established to bring the real estate syndicate into existence. In this case, the limited partnership would incur the expenses relating to the offering of the syndicate interests.
It is our opinion that the limited partners would be denied a deduction under paragraph 20(1)(e) of the Act for the same reasons as set out above. The limited partnership is not the "taxpayer" the interests of which are being issued or sold.
Although the foregoing comments are not binding on the Department, we trust they are of assistance.
Financial Industries Division
Income Tax Rulings and
Policy and Legislation Branch
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