10 November 1999 External T.I. 9824535 - PARAGRAPH110.6(14)(D)

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:

A trust and a corporation formed a partnership. Can the beneficiaries of the trust be considered to be members of the partnership (carrying on the business of the partnership), and if they are members, would they be considered to be related to the partnership for the purposes of subparagraph 110.6(14)(d) of the Act.

Position:

The beneficiaries of a trust would not be considered as members of the partnership where the trust owns an interest in the partnership. Hence, subparagraph 110.6(14)(d) would not apply to deem the partnership to be related to such beneficiaries.

Reasons:

The Canada Customs and Revenue Agency has not accepted, as a general proposition, that the beneficiary of a trust is the beneficial owner of the trust property.

There are no look-through provisions in the Act to permit the beneficiary of a trust to be the owner of the trust property comprising a partnership interest. Accordingly, the beneficiary would not, on this basis alone, be considered a member of the partnership and as such, would not be related to the partnership under paragraph 110.6(14)(d) of the Act.

XXXXXXXXXX 							F.B. Fontaine
								982453
Attention:	XXXXXXXXXX 

Dear Sirs:

Re: Paragraph 110.6(14)(d) of the Income Tax Act (the "Act")

This is in reply to your facsimile transmission dated September 21, 1998 in which you requested our views as to whether beneficiaries of a personal trust, which trust entered into a partnership with a corporation, would be considered to be related to the partnership for the purposes of paragraph 110.6(14)(d) of the Act.

Whether or not the situation you described is a completed or proposed transaction, paragraph 22 of Information Circular 70-6R3 (the "Circular") outlines the procedure to be followed in respect of such transaction. Accordingly, while we are unable to provide confirmation of the income tax effects of the particular situation, we are prepared to offer the following general comments:

Paragraph 110.6(14)(d) of the Act which is for the purposes of the definition "qualified small business corporation share" in subsection 110.6(1) of the Act states that:

"a partnership shall be deemed to be related to a person for any period throughout which the person was a member of the partnership".

Normally, a partnership agreement prescribes who shall be members of a partnership based on the contribution made to the partnership for the acquisition of an interest in the partnership (partnership interest). Where a trust owns a partnership interest, the beneficiary of such trust would not, by virtue of the trust's interest, be considered also to have acquired that partnership interest or an interest in such partnership interest. The Department has not accepted, as a general proposition, that the beneficiary of a trust is the beneficial owner of the trust property.

Since there are no look-through provisions under the Act that would allow the beneficiary of a trust to own directly the property of the trust that is a partnership interest, the beneficiary, in such circumstances, would not be a member of the partnership. Consequently, the partnership would not be deemed to be related to that beneficiary under paragraph 110.6(14)(d) of the Act.

The above comments represent an expression of opinion which, as indicated in paragraph 22 of the Circular, is not an advance income tax ruling and, accordingly, is not binding on Canada Customs and Revenue Agency.

Yours truly,

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