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: Where a trust earns income through a limited partnership, what is the amount of a trust's "revenues" derived from the sources described in paragraphs (b) and (c) of the definition "real estate investment trust" in subsection 122.1(1)?
Position: In the circumstances described, it would be the revenues of the partnership to the extent of the trust's share of income/loss for the period.
Reasons: As the partnership is not a separate taxpayer from the partner for the purpose of computing its revenues, the revenues of the partnership are considered to be the revenues of the partners.
XXXXXXXXXX
2010-036925
October 26, 2010
Dear XXXXXXXXXX :
Re: Subsection 122.1(1) - "real estate investment trust"
This is in reply to your letter of May 26, 2010 requesting our views as to what the Canada Revenue Agency ("CRA") would regard to be the revenues of a real estate investment trust, derived from amounts described in paragraphs (b) and (c) of the definition "real estate investment trust" in subsection 122.1(1) of the Income Tax Act, where the trust earns the related income (or loss) through a limited partnership. We acknowledge the additional information you have provided to us on July 27, 2010 and August 31, 2010, and our conversations in this regard (Maley/XXXXXXXXXX ).
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request. For more information concerning advance tax rulings, please refer to Information Circular 70-6R5 dated May 17, 2002. Where a situation involves a specific taxpayer and a completed transaction, the inquiry should be addressed to the relevant Tax Services Office, together with all relevant facts and documentation.
However, we are prepared to offer the following general comments, which may be of assistance. These comments are based on a hypothetical partnership, having a trust (the "REIT") as the limited partner and a corporation wholly-owned by the REIT as the general partner. These comments should not be construed as reflecting the CRA's views in circumstances where a partnership agreement provides for the allocation of any amount to or in respect of any partner, by source.
Pursuant to the definition "real estate investment trust" in subsection 122.1(1), a trust that is resident in Canada throughout the taxation year is a real estate investment trust if
(a) the trust at no time in the taxation year holds any non-portfolio property other than qualified REIT properties;
(b) not less than 95% of the trust's revenues for the taxation year are derived from one or more of the following:
(i) rent from real or immovable properties,
(ii) interest,
(iii) capital gains from dispositions of real or immovable properties,
(iv) dividends, and
(v) royalties;
(c) not less than 75% of the trust's revenues for the taxation year are derived from one or more of the following:
(i) rent from real or immovable properties,
(ii) interest from mortgages, or hypothecs, on real or immovable properties, and
(iii) capital gains from dispositions of real or immovable properties; and
(d) at each time in the taxation year an amount, that is equal to 75% or more of the equity value of the trust at that time, is the amount that is the total fair market value of all properties held by the trust each of which is real or immovable property, indebtedness of a Canadian corporation represented by a bankers' acceptance, property described by either paragraph (a) or (b) of the definition "qualified investment" in section 204, or a deposit with a credit union.
We agree with your view that the quantum of the REIT's revenues, for the purposes of the definition, that would be derived from the amounts described in paragraphs (b) and (c), would be the revenues of the partnership (i.e. before partnership expenses) having that character, to the extent of the REIT's profit (or loss) share for the year.
As noted in paragraph 22 of Information Circular 70-6R5, this opinion is not a ruling and consequently, is not binding on the CRA in respect of any particular situation. However, we trust that the comments will nonetheless be helpful.
Yours truly,
Robin Maley
For Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory
Affairs Branch
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