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:
1. Whether a part of the gross revenue and salaries and wages of the partnership would be included in the gross revenue and salaries and wages of the partner for the purposes of subsection 402(3) of the Regulations.
2. Whether interest and dividend income would be included in the gross revenue for the purposes of subsection 402(3) of the Regulations.
3. Whether the taxable capital gain would be included in the gross revenue for the purposes of subsection 402(3) of the Regulations.
Position:
1. The corporation includes in its gross revenue and salaries and wages for the purposes of subsection 402(3) of the Regulations, a portion of the gross revenue and salaries and wages of the partnership based on its interest in the income/loss of the partnership.
2. The interest on bonds, debentures or mortgages and the dividend on shares of capital stock would be excluded.
3. The taxable capital gain would be excluded.
Reasons:
1. Subsection 402(6) of the Regulations.
2. Subsection 402(5) of the Regulations. The reference in subsection 402(5) of the Regulations to "that is not used in connection with the principal business operations of the corporation" refers only to "rentals or royalties from property" and not to the other items enumerated therein.
3. The definition of "gross revenue" in subsection 248(1) of the Income Tax Act specifically excludes amounts as or on account of capital.
2000-004868
XXXXXXXXXX Sylvie Labarre, CA
October 20, 2000
Dear Sir:
Re: Allocation of Taxable Income Between Provinces
We are writing in response to your facsimile of September 25, 2000 in which you requested our interpretation of how taxable income earned by a corporation is to be allocated to each province.
The situation described in your letter is in regard to a corporation which has a permanent establishment in a province and is also a limited partner in a limited partnership operating in another province.
The corporation earned Canadian and foreign interest and dividend income and realized taxable capital gains.
Partnership's income
It is our position that each member of a partnership has a permanent establishment in the province where the partnership has a permanent establishment. This applies to both general and limited partners.
As the corporation is a member of the partnership, subsection 402(6) of the Income Tax Regulations (the "Regulations") provides that the corporation includes in its gross revenue and salaries and wages for the purposes of subsection 402(3) of the Regulations, a portion of the gross revenue and salaries and wages of the partnership based on its interest in the income/loss of the partnership. For the purposes of allocating the corporation's income to various provinces, the gross revenue and salaries and wages of the partnership will be allocated to the province where the partnership has a permanent establishment. In the situation you described, the gross revenue allocated to Alberta would be $498 and 0.0023% of the salaries and wages of the partnership would be included in salaries and wages for the purposes of subsection 402(3) of the Regulations and would be allocated to Alberta.
Interest and dividend income
For the purposes of your letter, you have assumed that subsection 402(5) of the Regulations did not apply to exclude from "gross revenue" the interest and dividend income earned by the corporation as it is an investment holding corporation and the property from which the corporation derived its interest and dividend income is used in connection with the principal business operations of the corporation. We do not agree with that opinion.
It is our position that subsection 402(5) of the Regulations excludes interest on bonds, debentures or mortgages and dividends on shares of capital stock from the definition of "gross revenue" for the purposes of subsection 402(3) of the Regulations. The reference in subsection 402(5) of the Regulations to "that is not used in connection with the principal business operations of the corporation" refers only to "rentals or royalties from property" and not to the other items enumerated therein.
You will note that only interest on bonds, debentures or mortgages are excluded by subsection 402(5) of the Regulations. In our view, the interest income earned on other investments (for example, interest on a bank account, on a term deposit or on a guaranteed investment certificate) are included in "gross revenue" for the purposes of subsection 402(3) of the Regulations.
Taxable capital gain
The formula in subsection 402(3) of the Regulations calls for an allocation of taxable income that is based, inter alia, on "the gross revenue for the year reasonably attributable to the permanent establishment in the province". In our view, a taxable capital gain would not be included in the determination of the "gross revenue" of a corporation for that purpose as the definition of "gross revenue" in subsection 248(1) of the Income Tax Act specifically excludes amounts as or on account of capital.
We trust our comments will be of assistance to you. However, as indicated in paragraph 22 of Information Circular 70-6R3, this opinion is not a ruling and, accordingly, it is not binding on the Canada Customs and Revenue Agency.
Yours truly,
Marc Vanasse, CA
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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