27 June 1995 External T.I. 9510555 - LIMITED PARTNER GUARANTEED RETURN

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.

		                                951055
XXXXXXXXXX                                Cal Brown
(613) 957 8980

Attention: XXXXXXXXXX

June 27, 1995

Dear XXXXXXXXXX:

This is in reply to your letter of April 17, 1995 concerning the at-risk rules in subsection 96(2.2) of the Income Tax Act (the "Act").

A limited partnership is engaged in the business of producing a television program. We assume from your letter that the limited partnership does not intend to own the film, but only to provide the services necessary to produce the film for an owner/distributor who will exploit the film. The limited partnership will receive a fee based on the gross receipts and net receipts that are earned by the film. As part of the arrangement the film production has been licensed for a fee to a broadcaster. We understand that this is done before the limited partners acquire their units. Furthermore, this license fee will be part of the gross revenue and net revenue on which the fee to the partnership will be calculated.

As mentioned in your letter paragraph 96(2.2)(d) clearly indicates that it can apply to benefits that are "contingently" available. We also take the position when providing rulings that there may be an at-risk problem in situations where there is any ascertainable revenue whether contingent or otherwise at the time the limited partner acquires his or her interest. The actual determination of whether or not there is a benefit and the amount of the benefit under paragraph 96(2.2)(d) can only be determined on the basis of the specific facts.

In a situation such as you have described, a benefit under paragraph 96(2.2)(d) would be determined based on the amount of revenue that contingently accrues to the limited partnership as a result of the license fee.which is considered to reduce a loss that the limited partner might otherwise incur as a result of holding or disposing of the partnership interest.

We note that the arrangement that you describe in your letter is similar in many respect to the prescribed revenue guarantees for prescribed film productions in the case of certified Canadian productions. As you know, these prescribed revenue guarantees would reduce the at-risk amount were it not for the specific provisions of subparagraph 96(2.2)(d)(ii) of the Act.

We acknowledge your point that such pre-sales are often used to finance the production, however, once the license fee is arranged the resulting fee to the limited partnership is contingently determined and will protect the limited partner's investment. Consequently, there would be a benefit under paragraph 96(2.2)(d).

Our understanding is that this position is in accordance with the intended policy of paragraph 96(2.2)(d) which among other things was to limit the partner's losses to the amount of the investment that was not "absolutely or contingently" protected by certain revenue arrangements.

We trust these comments will be of assistance.

Yours truly,

for Director
Manufacturing Industries,
Partnerships and Trusts Division
Income Tax Rulings
and Interpretations
Directorate
Policy and Legislation Branch