3 June 2009 External T.I. 2009-0319881E5 - T1135 Foreign Income Verification Statement

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: Which of two partnerships is the reporting entity required to file Form T1135

Position: Subsection 233.3 applies to the partnership which holds the foreign real property.

Reasons: It is the specified Canadian entity.

XXXXXXXXXX 	2009-031988
			Rob Ferrari
June 3, 2009 

Dear XXXXXXXXXX :

Re: Form T1135 Foreign Income Verification Statement.

We are writing in reply to your letter of April 28, 2009, as to the filing requirements of Form T1135, Foreign Income Verification Statement.

In the circumstances you described, a partnership ("Partnership A") owns real property outside of Canada which is used to earn rental income and has a cost amount exceeding $100,000. A second partnership ("Partnership B") holds a 90% interest in Partnership A and is entitled to that proportional share of income or loss from Partnership A. The remaining 10% interest in Partnership A is held by a U.S. corporation. All of the members of Partnership B are Canadian residents and the only asset of Partnership B is its interest in Partnership A, which has a cost amount that exceeds $100,000.

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 submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. The following comments are, therefore, of a general nature only.

Our Comments

In general terms, subsection 233.3(3) of the Income Tax Act (the "Act") requires a "reporting entity" to file a return in prescribed form (T1135). Subsection 233.3(1) of the Act defines a reporting entity to be a "specified Canadian entity" where at any time in the year such an entity owns an interest in "specified foreign property" with a cost exceeding $100,000. Paragraph (b) of the definition of specified Canadian entity includes a partnership where the share of the income or loss of the partnership for the fiscal period accruing to or for the benefit of taxpayers not resident in Canada is less than 90% of the total income or loss of the partnership for the period. An interest in a partnership that is a specified Canadian entity is pursuant to paragraph (o) excluded from the definition of specified foreign property. Based on the limited information provided, it is our view that section 233.3 of the Act would apply and Partnership A is the reporting entity within the meaning assigned under subsection 233.3(1) of the Act. This is because Partnership A is a partnership referred to in paragraph (b) of the definition of specified Canadian entity under subsection 233.3(1) of the Act. In this case, Partnership B would not be a reporting entity as it does not own any specified foreign property by virtue of the exception in paragraph (o) of the definition of specified foreign property under subsection 233.3(1) of the Act.

We would further note that the filing deadline for the information return for a taxation year is the same deadline that applies for the purposes of filing the reporting entity's income tax return for the year under Part I of the Act. A partnership's information return is required to be filed by the day by which the partnership's return under section 229 of the Regulations must be filed. If no section 229 return is required, the partnership's information return under section 233.3 must be filed by the day by which the section 229 return would be required to be filed if section 229 applied to the partnership.

We trust our comments will be of assistance to you.

Yours truly,

Gwen Moore
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch