10 November 1999 External T.I. 9902305 - NEWSPAPERS AND PERIODICALS

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: where a trust that is a partner of a partnership that holds the exclusive right to produce and publish a newspaper or periodical how is that ownership and income tests satisfied.

Position: look through to the beneficiaries

Reasons: similar to 19(6)

XXXXXXXXXX 						990230
S. J. Tevlin
Attention:  XXXXXXXXXX 

November 10, 1999

Dear Sirs:

Re: Section 19 of the Income Tax Act (the "Act")

We are writing in response to your letter dated January 28, 1999 wherein you requested our opinion with respect to the application of the ownership test described in the definition of "Canadian newspaper or periodical" in subsection 19(5) of the Act.

As you note, subsection 19(5) of the Act defines a "Canadian newspaper or periodical" to mean a newspaper or periodical where exclusive right to publish issues of such newspaper or periodical is held by Canadian citizens or by certain partnerships, associations and corporations. If a partnership holds the exclusive right to produce and publish the newspaper or periodical, the newspaper or periodical will only qualify as a Canadian newspaper or periodical if the following two conditions are met:

(i) partnership interests representing at least three quarters of the total value of the partnership property are beneficially owned by Canadian citizens, corporations described in paragraph (e) of the definition of Canadian newspaper or periodical ("Permitted Corporations") or a combination thereof (the "ownership test"); and

(ii) at least three quarters of the income or loss of the partnership from any source is included in the determination of income of Canadian citizens, Permitted Corporations or a combination thereof (the "income test").

You have expressed concern as to how the "ownership test" and "income test" are to be applied in a situation where a trust is a partner of a partnership that holds the exclusive right to produce and publish a newspaper or periodical.

You suggest three options as to how the "ownership" and "income" tests could be applied.

(1) The first option is to apply the test to the trust itself since under the Act a trust is a separate person. However, a trust could never satisfy the ownership test because it is not a Canadian citizen or Permitted Corporation.

(2) The second option is to apply the test to the trustee. If the trustee is a Canadian citizen or a Permitted Corporation then the tests would appear to be satisfied. However, any income or loss of the partnership would not be included in the income of the trustee but would either be included in the income of the trust or the beneficiaries. If the trust was to distribute all its income to the beneficiaries, the trust would have no income pursuant to subsection 104(6) of the Act.

(3) The third option is to apply the test to the beneficiaries of the trust. If all the beneficiaries of the trust are either Canadian citizens or Permitted Corporations it would appear that the trust would comply with the requirements.

You have asked which of the above options, would the Canada Customs and Revenue Agency (the "CCRA") consider to be used to determine whether a trust, that is a partner of a partnership that holds the exclusive right to produce and publish a newspaper or periodical, satisfies the ownership and income tests.

In this regard we offer the following general comments.

Pursuant to subsection 19(6) of the Act, where a trust holds the exclusive right to produce and publish a newspaper or periodical, the newspaper or periodical will not qualify as a Canadian newspaper or periodical unless each beneficiary of the trust is a Canadian citizen, Permitted Corporation, partnership or association described in the definition of a Canadian newspaper or periodical. Although subsection 19(6) of the Act does not apply to the situation where a trust is a partner in a partnership that holds the right, it is our opinion that the same approach should be extended to the trust as partner i.e. a look through to the beneficiaries of the trust.

The foregoing comments are given in accordance with the practice referred to in paragraph 22 of IC-70-6R3 and are not binding on the CCRA.

Finally, we wish to note that pursuant to the Canada-US Agreement on Magazines, the definition "Canadian newspaper or periodical" is proposed to be amended. Our comments are thus only relevant to that term as currently defined in the Act.

We trust that our comments will be of assistance to you.

Yours truly,

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