7 January 1999 External T.I. E9830935 - LIMITED "SERVICES 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: Whether a "limited services partnership," which provides administrative services, as well as professional staff, to a professional partnership at a 15% mark-up, would be acceptable.

Position: General comments only. Our general view with respect to services partnerships is explained in opinion letters 9603995 and 9634905. Further, the Department views fees based on a 15% mark-up of the reasonable costs incurred by the services partnership as being deductible.

Reasons: The acceptance of claims involving the use of service partnerships involves a question of fact, which can only be determined following a thorough review of the circumstances of a particular situation. Further, it is the Department’s practice to examine all of the facts before making a determination as to whether subsection 245(1) would be applied. We would also note that there is a possibility that section 103 may apply in some situations

XXXXXXXXXX 	J. Gibbons
		5-983093
Attention:  XXXXXXXXXX 

January 7, 1999

Dear XXXXXXXXXX:

We are replying to your letter of November 18, 1998, in which you requested our comments concerning the use of a limited “service partnership” by a professional partnership. The partners of the limited partnership are individuals and/or inter vivos trusts, the trustees of which are partners of the professional partnership and the beneficiaries of which are trustees and family members of the trustees.

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only.

You describe a service partnership which provides: (i) management and administrative services, including arranging the purchase of all goods and services needed by the professional partnership (e.g., supplies, equipment, furniture, leasehold improvements etc.) and the leasing of equipment and premises from third parties, (ii) non-professional staff, and (iii) professional staff. The service partnership will charge a 15% mark-up on the cost of the services provided. Alternatively, you want us to consider an arrangement whereby, instead of facilitating the purchase of the goods and services by the professional partnership, the service partnership will purchase such goods and services directly and sell it the professional at a price equal to their cost plus 15%.

Our general view with respect to the use of services partnerships is explained in opinion letters 9603995 and 9634905. Further, the Department generally views fees based on a mark-up not exceeding 15% of the reasonable costs incurred by the service partnership as being deductible. However, as stated in our earlier letters, the acceptance of claims involving the use of service partnerships involves a question of fact, which can only be determined following a thorough review of the circumstances of a particular situation. Further, we cannot answer your question whether subsection 245(1) would be applied since it is the Department’s practice to examine all of the facts before making this determination. We would also note that there is a possibility that section 103 may apply in some situations.

We trust that these comments will be of assistance.

Yours truly,

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate

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