1999 Ruling 9926143 - LIMITED PARTNERSHIP

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: On wind-up of partnership can each piece of art be considered identical properties and qualify for 98(3) application?

Position: No.

Reasons: Even if identical property 98(3) states that each partner must receive undivided interest in each property.

XXXXXXXXXX
XXXXXXXXXX 992614
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX (the "Limited Partnership")

We are writing in response to your letters dated XXXXXXXXXX wherein you requested an advance income tax ruling in respect of the Limited Partnership.

Except as otherwise noted, all statutory references in this request for advance income tax rulings are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

To the best of your knowledge and that of your clients, no issue involved in this ruling request:

a) is in an earlier return of the taxpayer or a related person;

b) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person;

c) is under objection by the taxpayer or a related person;

d) is before the courts; and

e) is the subject of a ruling previously issued by the Rulings Directorate.

Our understanding of the relevant facts, proposed transactions and purposes of the proposed transactions is as follows:

Relevant Facts

1. The Limited Partnership was formed under the Partnership Act (XXXXXXXXXX) on XXXXXXXXXX. The general nature of its business will be to XXXXXXXXXX.

The Limited Partnership will continue until the earliest of

(a) the passing of a special resolution approving the dissolution of the Limited Partnership;

(b) the bankruptcy, dissolution or winding-up (except dissolution as a consequence of merger, amalgamation, consolidation or other corporate reorganization) of the general partner of the Limited Partnership or the occurrence of any other event which would permit a trustee or receiver to acquire control of the general partner's affairs unless such general partner is replaced by a new general partner concurrently with the occurrence of such event;

(c) the date on which the Limited Partnership is dissolved by operation of Law or by judicial decree; and

(d) XXXXXXXXXX.

2. The general partner is XXXXXXXXXX (the "General Partner"). The General Partner was incorporated under the Company Act (XXXXXXXXXX) on XXXXXXXXXX. The General Partner is a Canadian controlled private corporation. Its only asset will be its general partnership interest in the Limited Partnership. The term Canadian controlled private corporation has the meaning assigned by subsection 127(5) of the Act.

The authorized capital of the General Partner is XXXXXXXXXX common shares without par value of which 1 common share is issued and outstanding. That share is held by XXXXXXXXXX is a resident of Canada. XXXXXXXXXX is also President, Secretary and Director of the General Partner. XXXXXXXXXX.

3. The General Partner has exclusive authority and responsibility to manage and control the business of the Limited Partnership and is liable for all the debts and losses of the partnership although it has no obligation to pay the liabilities of the limited partners individually or to return capital to the limited partners from its own resources in the event the business of the Partnership fails. The General Partner is entitled to the reimbursement of reasonable costs incurred on behalf of the partnership. The General Partner will be responsible for the management of the Limited Partnership within the terms of partnership agreement.

4. The capital structure of the Limited Partnership consists of units of which the initial unit has been issued to XXXXXXXXXX at a price of $XXXXXXXXXX to facilitate the formation of the Limited Partnership. Upon acceptance of the first subscription for units, as described in the Proposed Transactions below, the Limited Partnership will redeem the initial unit and make payment therefor in the amount of $XXXXXXXXXX.

5. The General Partner has applied for a Tax Shelter Identification Number pursuant to subsection 237.1(2) of the Act.

Proposed Transactions

6. The General Partner will, through an agent, offer for sale in the province of XXXXXXXXXX partnership units in the Limited Partnership. Up to XXXXXXXXXX limited partnership units will be issued at an issue price of $XXXXXXXXXX per unit. The minimum individual subscription will be $XXXXXXXXXX (XXXXXXXXXX units). Payment of the subscription price will be cash or certified cheque for the full subscription price.

7. If the offering is fully subscribed for, the total net proceeds derived by the Limited Partnership will be $XXXXXXXXXX less the expenses of the offering estimated at $XXXXXXXXXX. The net funding will firstly be expended to pay expenses related to the XXXXXXXXXX (described in paragraph 8 below), and secondly to pay expenses related to the XXXXXXXXXX. These expenses have been estimated to be as follows:

XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX

8. The General Partner will enter into an agreement (the "XXXXXXXXXX Agreement") with each ofXXXXXXXXXX (collectively the "XXXXXXXXXX" individually the "XXXXXXXXXX") XXXXXXXXXX.

9. Pursuant to each XXXXXXXXXX Agreement, the General Partner will pay XXXXXXXXXX.

10. The costs related to the production of the XXXXXXXXXX will be categorized as inventory while other costs will be allocated to the fiscal period in which such expenses occur.

11. The Limited Partnership and the General Partner will enter into an agreement (the "Marketing Agreement") which will provide that the General Partner will market and distribute the XXXXXXXXXX for resale on behalf and for the benefit of the Limited Partnership.

12. It is estimated that there will be no income in the year XXXXXXXXXX. The marketing of the XXXXXXXXXX.

13. The Limited Partnership agreement will specify that the net income or loss of the Limited Partnership will be allocated initially to all limited partners and to the General Partner pro rata. A limited partner will be restricted to an allocation of any net income equal to an aggregate amount of XXXXXXXXXX% of their initial investment. There is no guarantee that there will be sufficient aggregate net income to be allocated to a limited partner. If and when the XXXXXXXXXX% return has been realized by the Limited Partners the sharing ratio will change such that any further net income or losses will be allocated as to XXXXXXXXXX% to the limited partners and XXXXXXXXXX% to the General Partner.

14. The General Partner will, from time to time, consider the availability of surplus cash for distribution to the General Partner and limited partners and will reserve such amount therefrom as it considers necessary to meet the expenses and liabilities of the Limited Partnership; provided that in any event, an aggregate of $XXXXXXXXXX may be reserved from time to time for such purpose. Within XXXXXXXXXX days after the end of each quarter of each fiscal year of the Limited Partnership, the General Partner will distribute the surplus cash available for distribution, after reserving therefrom the amount necessary to meet the expenses and liabilities of the Limited Partnership.

15. It is projected that the Limited Partnership will generate the following revenues:

XXXXXXXXXX
XXXXXXXXXX

16. The General Partner shall enter into further agreements from time to time for the marketing of XXXXXXXXXX on such terms as the General Partner determines to be most advantageous for the business of the Limited Partnership.

17. The General Partner will from time to time approve the donation of XXXXXXXXXX.

Purpose of The Proposed Transactions

The purpose of the Limited Partnership is to raise capital in order to finance the production of XXXXXXXXXX that will be distributed and sold through the Limited Partnership.

Rulings Given

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, the proposed transactions and the purposes of the proposed transactions and the proposed transactions are carried out as described herein our rulings are as follows:

A. The expenses of the Limited Partnership will be deductible in the computation of the Limited Partnership's income or loss for the relevant taxation year in which the expenses are incurred, pursuant to section 9 of the Act, to the extent that:

i) such reporting is not inconsistent with (a) the provisions of the Act, (b) established rules of law and (c) well accepted business principles;

ii) the outlays and expenses are reasonable in amount and are not on account of capital; and
iii) the outlays and expenses are made or incurred for the purpose of gaining or producing income from a business with a reasonable expectation of profit.

B. XXXXXXXXXX, as described in paragraph 17 above, that qualify as XXXXXXXXXX, will qualify as a gift made by the Limited Partnership for purposes of subsection 118.1(8) of the Act such that members of the Limited Partnership at the end of a fiscal period of the Limited Partnership during which such a gift is made shall be deemed to have made a gift for their share of the gift by the Limited Partnership.

These rulings are given subject to the general limitations and qualifications set out in Information Circular 70-6R3 dated December 30, 1996 and are binding on the CCRA, provided that the proposed transactions described herein are completed by XXXXXXXXXX.

Our rulings are based on the Act in its present form and do not take into consideration any proposed amendments to the Act.

Comments:

Nothing in this ruling should be construed as implying that the CCRA has agreed to or reviewed:

(a) the determination of fair market value of XXXXXXXXXX, or

(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings above, including sections 18.1,103 and 245 of the Act.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income tax rulings and Interpretations Directorate
Policy and Legislation Branch