7 August 2002 External T.I. 2002-0144205 - FOREIGN PROPERTY LIMITED PARTNERSHIP

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 an interest in a limited partnership foreign property for purposes of Part XI of the Act?

Position: Yes.

Reasons:

Under paragraph (i) of the definition of foreign property in subsection 206(1) of the Act, except as prescribed by Regulation, an interest in a partnership is a foreign property.

		2002-014420
XXXXXXXXXX 	M.P. Sarazin, CA
(613) 957-2089
August 7, 2002

Dear XXXXXXXXXX:

Re: Limited Partnership Units and Foreign Property

This is in reply to your facsimile of March 6, 2002, which was forwarded to us by the Registered Plans Division on June 3, 2002, requesting our views as to whether or not units of a limited partnership are considered foreign property for purposes of Part XI of the Income Tax Act (the "Act"). In addition, you would like to know what the requirements are for a limited partnership to qualify as a "designated limited partnership".

Comments

Under paragraph (i) of the definition of "foreign property" in subsection 206(1) of the Act, any interest in or any right to acquire an interest in a partnership will be foreign property unless the interest or the right to acquire the interest is prescribed by regulation not to be foreign property. Consequently, it is clear that the Department of Finance wanted to limit the amount that entities listed in section 205 of the Act invested in partnerships.

Under Part L of the Income Tax Regulations (the "Regulations"), certain partnership interests are excluding from being considered foreign property for the purposes of Part XI of the Act. Under paragraph 5000(1.1)(e) of the Regulations, an interest in a "designated limited partnership" is excluded from being considered foreign property. The exclusion was intended to remove the impediment faced by Canadian-based limited partnerships in raising capital to finance their business activities.

A "designated limited partnership" is defined in subsection 5000(7) of the Regulations to mean a limited partnership that satisfies all of the following conditions:

(a) the interests of the limited partners are described by reference to a single class of units of the partnership listed on a stock exchange prescribed under section 3200 of the Regulations,

(b) that class of units was listed before 1999 on a stock exchange prescribed under section 3200 of the Regulations,

(c) at least 80% of the full-time employees employed by the partnership are employed in Canada,

(d) the total of all amounts each of which is the cost amount to the partnership of a property used in its activities carried on in Canada is not less than 80% of the total of all amounts each of which is the cost amount to the partnership of a property of the partnership,

(e) the principal activity of the partnership is

(i) the production of goods in Canada,

(ii) the sale of goods in Canada,

(iii) the provision of services in Canada, or

(iv) any combination of the activities described in (i) to (iii) above, and

(f) the revenue from that principal activity is regulated by a public authority governed by the laws of Canada or a province.

The determination of whether a limited partnership would be a designated limited partnership is a question of fact. Since the conditions are very clear and restrictive, you may want to contact the limited partnership in question to see if it is, in fact, a designated limited partnership for purposes of the Act and Regulations.

We trust these comments will be of assistance.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate