1 November 1999 External T.I. 9903905 - TAX SHELTER INVESTMENT

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:

Whether Corp. A's partnership interest in LP1 would constitute a "tax shelter investment" within the meaning of subparagraph 143.2(1)(b)(iii) of the Income Tax Act.

Position:

Subparagraph 143.2(1)(b)(iii) would not apply to the interest in LP1 that Corp. A holds.

Reasons:

Since Corp. A and LP1 do not hold an interest in LP2, the interest of Corp. A in LP1 does not entitled Corp. A, directly or indirectly to a share of the income or loss of LP2. Therefore, even if Corp. B holds an interest in LP2 and that interest is a tax shelter investment, subparagraph 143.2(1)(b)(iii) would not apply to the interest in LP1 that Corp. A holds

XXXXXXXXXX 5-990390
Sylvie Labarre, CA
Attention: XXXXXXXXXX

November 1, 1999

Dear Sirs\Mesdames:

Re: Tax Shelter Investment

We are writing in response to your letter dated February 15, 1999 in which you requested a technical interpretation of subparagraph 143.2(1)(b)(iii) of the definition "tax shelter investment". We apologize for the delay in responding.

You have described the following hypothetical situation. A corporation ("Corp. A") holds as limited partner a partnership interest in a limited partnership ("LP1"). Another corporation ("Corp. B") also holds as limited partner a partnership interest in LP1. Corp. A and Corp. B are dealing at arm's length with each other. Corp. B also holds as limited partner a partnership interest in another limited partnership ("LP2"). Corp. B's partnership interest in LP2 constitutes a "tax shelter investment" within the meaning of subsection 143.2(1) of the Act. Neither Corp. A nor any other person not dealing at arm's length with Corp. A holds any partnership interests in LP2.

You have asked whether Corp. A's partnership interest in LP1 would constitute a "tax shelter investment" within the meaning of subparagraph 143.2(1)(b)(iii) of the Act.

Our comments

In the situation you described, Corp. A is entitled to a share of the income or loss of LP1. Corp. B is entitled to a share of the income or loss of LP1 but that interest in LP1 is not a tax shelter investment and that interest does not entitle Corp. B to a share of the income or loss of LP2.

Since Corp. A and LP1 do not hold an interest in LP2, the interest of Corp. A in LP1 does not entitle Corp. A, directly or indirectly to a share of the income or loss of LP2. Therefore, even if Corp. B holds an interest in LP2 and that interest is a tax shelter investment, subparagraph 143.2(1)(b)(iii) would not apply to the interest in LP1 held by Corp. A.

Our opinion assumes that Corp. A and Corp. B are the only partners of LP1.

As indicated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, this opinion is not a ruling and, accordingly, it is not binding on the Canada Customs and Revenue Agency.

We trust that these comments will be of assistance.

Yours truly,

Marc Vanasse, CA
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch

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