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: if partnership holds shares with dividend entitlement if dividends not declared can it still be said that there is an excluded interest in oartnership per 40(3.15)?
Position: Yes. can be said to earn income from property
Reasons: provided dividends have been paid at any time in the time period.
XXXXXXXXXX 980657
S. Tevlin
Attention: XXXXXXXXXX
May 22, 1998
Dear Sir:
Re: Paragraph 40(3.15) - Excluded Interest
We are writing in response to your letter dated March 11, 1998 wherein you asked for our opinion with respect to the meaning of the phrase “earns income from a property that was owned by it throughout that period...”, as it is used in the definition of “excluded interest” in subsection 40(3.15) of the Income Tax Act (the “Act”).
In particular you describe the situation where a partnership may own investments that are shares in a corporation that are held for the purpose of earning income but, on which dividends are not declared in each year of their ownership.
Your concern is that where in any particular year a dividend is not paid on the shares it could not be said that the shares were property from which the partnership earns income and as such the partnership interest would not be an excluded interest for that particular year.
In this regard we offer the following general comments.
Subsection 40(3.15) of the Act defines an excluded interest in a partnership, at any time, as an interest in a partnership that actively carries on a business that was carried on by it throughout the period beginning February 22, 1994 and ending at that time or that earns income from a property that was owned by it throughout that period. We note that for this purpose income means net income.
It is our opinion that, provided dividends have been paid on the shares owned by the partnership at any time in the period referred to in subsection 40(3.15) of the Act and all other requirements have been met, then the interest in the partnership can be considered an excluded interest for purposes of subsection 40(3.1) of the Act throughout that period.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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