10 August 1998 External T.I. E9816975 - PARTNERSHIP, STREAMING TO PARTNERS

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: effectively shifting deductions from partnership level to partners level

Position: 103(1) may apply, but question of fact

Reasons: streaming of deductions (or partnership computations) could reduce/postpone tax of member

XXXXXXXXXX 981697
Denise Dalphy

Attention: XXXXXXXXXX

August 5, 1998

Dear Sirs:

Re: Section 103 of the Income Tax Act (the “Act”) and streaming partnership deductions

This is in reply to your letter of June 26, 1998 concerning the above-noted issue.

You have advised that the interpretation you seek relates to a proposed transaction of a specific taxpayer. Where an interpretation is sought on a transaction that is seriously contemplated in the near future, you may consider requesting an advance income tax ruling. The process for requesting advance rulings is described in Information Circular IC-70R3 dated December 30, 1996.

Where deductions, such as those described in paragraphs 20(1)(a) and (b) of the Act, that are taken at the partnership level are effectively transferred to the partner level, subsection 103(1) of the Act may apply. This is a question of fact to be determined on an analysis of all circumstances relevant to a particular situation. Of course, it may also be necessary in a particular situation to determine whether a relationship between persons is in fact a partnership or is a joint venture.

Finally, with respect to your comment (on page 5 of your aforementioned letter) about resolving an “imbalance” over time, the Department stated in its response to Question 22 at the Revenue Canada Round Table, 1991 British Columbia Tax Conference:

“Generally, partnership agreements provide for the sharing of profits and losses on the same basis from year to year. Any deviation from this pattern, as in the above-noted example, should be supported by valid reasons. Where the principal reason for the agreed upon allocation may reasonably be considered to (sic) a reduction or postponement of the tax that might otherwise have been or become payable under the Act, the Department would seek to apply the provisions of subsection 103(1) of the Act.”

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R3, the above comments do not constitute an income tax ruling and accordingly are not binding on the Department. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.

Yours truly,

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