8 July 2003 External T.I. 2003-0182555 - PARTNERSHIPS

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues:

Is a partnership a "taxpayer" for the purposes of sections 142.2 to 142.7 of the Act (the "mark-to-market rules")?

Position: Yes.

Reasons: The scheme of the mark-to-market rules.

XXXXXXXXXX 						2003-018255
R. Maley

July 8, 2003

Dear XXXXXXXXXX:

Re: Mark-to-Market Rules and Partnerships

This is in reply to your letter of January 7, 2003 regarding the application of sections 142.2 to 142.7 of the Income Tax Act ("the Act"), the "mark-to-market rules", to a particular fact situation

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. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments.

The mark-to-market rules apply only to taxpayers that are financial institutions. Subsection 142.2(1) of the Act defines a "financial institution" for the purpose of these rules to include certain partnerships. Given that the definitions "mark-to-market property" and "specified debt obligation" in subsection 142.2(1) of the Act are defined in respect of a taxpayer, it is our view that a partnership is a taxpayer for purposes of sections 142.2 to 142.7 of the Act.

Subsection 142.2(1) of the Act excludes from the definition "mark-to-market property" a share of a corporation in which a taxpayer holds a significant interest at any time in the year. Subsection 142.2(2) of the Act provides that a taxpayer will be viewed as holding a significant interest in a corporation where it holds shares giving it 10% or more of the votes that could be cast under all circumstances at an annual meeting of the shareholders of the corporation and representing 10% or more of the fair market value of all the issued shares of the corporation.

Thus, a partnership holding a significant interest in a corporation would not have to mark its shares to market in computing its income or loss for the year under section 96 of the Act. (These comments are premised, of course, on the understanding that the partnership arrangement was not created for the purpose of avoiding the mark-to-market rules.)

While the foregoing comments are not binding on the Canada Customs and Revenue Agency, we trust that they are helpful.

Yours truly,

F. Lee Workman
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch