11 December 1998 Roundtable, E9829456 - WHETHER FORMER PARTNER IS A MEMBER

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 an individual who is a former partner and who has a residual interest as defined in 98.1(1), is a member of the partnership for purposes of determining whether must file under Regulation 229(5)(a), which applies where all members are corporations.

Position: No.

Reasons: 98.1(1)(d) deems the former partner not to be a member, except for certain specified purposes. Neither Regulation 229(5) (nor 221(1)(d) of the Act, which authorizes that regulation) are specified.

December 11, 1998

	Business Returns	Income Tax Rulings and
	Processing Division	  Interpretations Directorate
B. G. Dodd
	Rick Gallichan	957-8954
	Information Returns Section
	982945
	Partnership Information Return - Late Filing Penalty

We are writing in reply to your November 12, 1998 facsimile transmission concerning the XXXXXXXXXX (the “Partnership”) and the late filing penalty assessed in connection with its annual partnership information return.

The issue as we understand it is whether the Partnership is required to file the information return within the time frame set out in paragraph 229(5)(a) of the Income Tax Regulations (the “Regulations”) or paragraph 229(5)(c) thereof. Paragraph 229(5)(a) applies with respect to a partnership, all the members of which are corporations throughout the fiscal period, whereas paragraph 229(5)(c) applies where the members are not exclusively corporations or exclusively individuals (e.g. a combination of corporations and individuals). We understand the late filing penalty was assessed on the basis that the filing requirements of paragraph 229(5)(c) of the Regulations were applicable because the Partnership consisted of both corporate and individual members. In its letter dated October 9, 1998, the Partnership states that “all of the current members of this partnership are corporations and have been since XXXXXXXXXX ” and that the individuals involved are “all former retired partners who still have a residual capital balance owing to them” as described in section 98.1 of the Income Tax Act (the “Act”).

Where a taxpayer has ceased to be a member of a partnership but has a residual interest in the partnership as set out in subsection 98.1(1) of the Act, paragraph 98.1(1)(d) deems the taxpayer not to be a member of the partnership except for certain specified purposes. These specified purposes do not extend to subsection 229(5) of the Regulations. Accordingly, provided the above assertions by the Partnership are correct with respect to the year in question, it would be our view that the filing requirements of paragraph 229(5)(a) of the Regulations are applicable. (It is, of course, a question of fact whether subsection 98.1 of the Act is applicable in any particular situation.)

In reviewing the material which you supplied, particularly the February 7, 1997 letter from XXXXXXXXXX, it appears that some of the principals involved incorporated, and that these corporations were the members of the Partnership. At the bottom of page 2 of that letter, it is stated that XXXXXXXXXX ceased to be a member of the Partnership and that XXXXXXXXXX has and will continue to hold a residual interest in his personal capacity. It would appear that somehow a corporate interest in the Partnership was transformed into a personal interest (presumably on the retirement of XXXXXXXXXX). This is something that may warrant further review so you might consider referring the matter to the local T.S.O. for consideration on audit.

We hope this will be of assistance.

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