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.
Principal Issues: How does the allocation need to be made between to the general partner and the limited partner of the limited partnership for the purpose of the 15% refundable Nova Scotia research and development tax credit in section 41 of the Nova Scotia ITA?
Position: The 15% refundable Nova Scotia RDTC has to be allocated between the partners in the same proportion in which the partners have agreed to share any income or loss if section 103 of the Federal ITA is not applicable in respect of the agreement to share such income or loss.
Reasons: Section 41 of the Nova Scotia ITA does not contain a similar provision to subsection 49(5).
XXXXXXXXXX 2009-034764
May 19, 2011
Dear XXXXXXXXXX :
Re : Subsection 41(8) of the Nova Scotia Income Tax Act
This is in response to your email correspondence dated November 11, 2009 regarding subsection 41(8) of the Nova Scotia Income Tax Act (NSITA) with regards to a limited partnership. We regret the delay in responding to your query.
Specifically, you have submitted the following situation:
- Corporation 1 is the limited partner of a limited partnership called "ABC LP".
- Corporation 1 holds an interest of 99.9% in ABC LP.
- Corporation 1 also holds all of the issued shares of Corporation 2 which is the general partner of ABC LP.
- Corporation 2 holds an interest of 0.01% in ABC LP.
- All of the scientific research and experimental development expenses (hereinafter referred to as "SR&ED expenses") are incurred by ABC LP in Nova Scotia.
You asked how the allocation need to be made between to the general partner and the limited partner of the limited partnership for the purpose of the 15% refundable Nova Scotia research and development tax credit (hereinafter referred to as "15% refundable Nova Scotia RDTC") in section 41 of the NSITA.
Your opinion is that for purposes of determining the portion of the Nova Scotia RDTC that as to be allocated to the partners, only the NSITA has to be examined and no provision in the NSITA provides specific rules for limited partnerships.
It is also your opinion that the rules in subsection 41(8) of the NSITA apply to limited partnership as a partnership includes limited partnerships.
Your conclusion is that subsection 41(8) of the NSITA provides that the 15% refundable Nova Scotia RDTC has to be allocated between the partners with regards to their prorata interest in the partnership. Therefore, Corporation 1 should be entitled to 99.9% of the 15% refundable Nova Scotia RDTC and Corporation 2 should be entitled to 0.01% of the 15% refundable Nova Scotia RDTC.
Our Comments
Written confirmation of the tax implications inherent in particular transactions may only be provided by this Directorate where the transactions are proposed and are the subject matter of an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the Internet at http://www.cra-arc.gc.ca. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to provide the following general comments.
It is our opinion that the provisions of the of the NSITA must be applied and interpreted in a manner consistent with similar provisions of the Federal Income Tax Act, by virtue of subsections 2(4) and (5) of the of the NSITA. Moreover, subsection 49(5) of the NSITA provides specific rules for limited partnerships, but theses rules are only for purposes of section 49 governing the manufacturing and processing investment tax credit.
We concur that the rules in subsection 41(8) of the NSITA seem to apply to all type of partnerships, including limited partnerships. In the event the 15% refundable Nova Scotia RDTC is allocated between the partners of a limited partnership in the same proportion in which the partners had agreed to share any income or loss if section 103 of the Federal Income Tax Act was not applicable, we would be of the opinion that this allocation would be in accordance with subsection 41(8) of the NSITA.
We trust these comments will be of assistance.
Yours truly,
François Bordeleau, LL.B.
Manager
Individuals, Business and Partnerships Section
Business and Partnerships Division
Income Tax Rulings Directorate
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