1999 Ruling 991706A - XXXXXXXXXX RULING

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:

Supplementary ruling with regard to a change in the earning of the "First Fee" component of the XXXXXXXXXX fee by the XXXXXXXXXX Partnership.

Position:

Ruling requests confirmed.

Reasons:

The First Fee payable to the XXXXXXXXXX Partnership will now be based on a straight XXXXXXXXXX % (or more) of the XXXXXXXXXX Expenses instead of being contingent on a XXXXXXXXXX. Under the latter method, fees for the XXXXXXXXXX would be earned following the year in which the XXXXXXXXXX Expenses were incurred. Whereas by fixing the First Fee, the XXXXXXXXXX Partnership could accrue more accurately, for the purposes of the XXXXXXXXXX % rule under subsection 18.1(15), the appropriate amount as income for XXXXXXXXXX.

Such fixed fee equal to XXXXXXXXXX % of the XXXXXXXXXX expenses was included in the facts provided in our ruling letter, #983239, at paragraph 11. The second paragraph of ruling G of that letter provided that such XXXXXXXXXX % fee would not be an at-risk amount.

XXXXXXXXXX 						1-991706

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: Supplementary Ruling Request
XXXXXXXXXX
XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX in which you requested a supplementary advance income tax ruling. Accordingly, this letter is supplemental to our advance income tax ruling, number 983109 dated XXXXXXXXXX, 1999 (the "Original Ruling").

We also acknowledge our telephone conversations concerning this request.

Unless otherwise used as proper names or defined herein, the capitalized terms used in this letter have the meanings assigned in the Original Ruling.

All the facts and proposed transactions remain as outlined in the Original Ruling except for the proposed transactions described in paragraph 26 thereof which is amended to read as follows:

"26. In consideration for providing the XXXXXXXXXX Services, the XXXXXXXXXX Partnership will be entitled to receive a fee (the "XXXXXXXXXX Fee") from the XXXXXXXXXX. No amount of the XXXXXXXXXX Fee will be ascertainable, whether contingent or otherwise, at the time that the Limited Partner acquires a Unit of the Partnership or at the time the Partnership acquires units in the XXXXXXXXXX Partnership. The XXXXXXXXXX Fee will be approximately, but not less than, XXXXXXXXXX % of the cost of the XXXXXXXXXX Services (the "First Fee") plus a contingent amount (the "Contingent Amount") computed by reference to the exploitable success of the Property. The Contingent Amount can be broken down into three components as follows:

(a) XXXXXXXXXX;

(b) XXXXXXXXXX;

(c) XXXXXXXXXX.

XXXXXXXXXX

Provided that the statement of facts and proposed transactions is accurate and constitutes complete disclosure of all the facts of the representations, relevant facts, proposed transactions and the purposes thereof, and provided further that all the other requirements described in the preamble to Ruling A of the Original Ruling are met, we confirm that :

(J) the amendment to the proposed transactions described in the Original Ruling, as a result of revised paragraph 26 thereof described above, will not invalidate rulings A to I given in the Original Ruling;

(K) paragraph 96(2.2)(d) of the Act will not apply in respect of the First Fee to reduce either the at-risk amount of the Partnership in the XXXXXXXXXX Partnership or the at-risk amount of the Limited Partners in the Partnership; and

(L) the First Fee will not constitute an "at-risk adjustment" within the meaning of subsection 143.2(2) of the Act. Accordingly, the First Fee will not reduce, pursuant to subparagraph 143.2(6)(b)(ii) of the Act, the cost of a Limited Partner's Unit, the Partnership's cost of a XXXXXXXXXX Partnership Unit or the amount of any expenditure of the Partnership or of the XXXXXXXXXX Partnership.

The comments made in the paragraphs following ruling I in the Original Ruling remain the same except that comment (h) of the first such paragraph is revised to read:

"other than as expressed in ruling (K) in this supplementary ruling letter with regard to the First Fee, the applicability or non-applicability of paragraph 96(2.2)(d) of the Act. In this regard, it is our opinion that if any amount of gross revenue related to the Property is ascertainable, whether contingent or otherwise, at the time that the Limited Partners acquire interests in the Partnership or at the time the Partnership acquires a XXXXXXXXXX Partnership Unit, this would affect the at-risk amount of the Limited Partner and the Partnership; and".

Yours truly,

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