29 January 1990 Ministerial Letter 58458 F - Partnerships - 25% Ownership Test

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.

January 29, 1990

Dear Sirs:

Re: Subparagraph 115(1)(b)(iv) of the Income Tax Act (the "Act")

This is in reply to your letter of July 28, 1989 concerning the above-noted subparagraph of the Act as it relates to partnerships.  In particular, you enquire whether the 25% ownership test described in this subparagraph of the Act is to be applied at the partners' or the partnership level.

Paragraphs 96(1)(a) and (c) of the Act provide that, where a taxpayer is a member of a partnership, his "taxable income earned in Canada" shall be computed as if "(a) the partnership were a separate person resident in Canada" and "(c) each partnership activity (including the ownership of property) were carried on by the partnership as a separate person". Pursuant to paragraph 96(1)(f) of the Act, the income of the partnership is considered to retain its identity when flowing through to the partners.

Section 115 of the act describes what is included in computing "taxable income earned in Canada". Subparagraph 115(1)(a)(iii) of the Act requires non-residents (including non-resident partners) to include taxable capital gains from dispositions described in paragraph (b) of subsection 115(1) of the Act in computing "taxable income earned in Canada". Subparagraph 115(1)(b)(iv) of the Act describes the condition which would require shares of a public company to be considered "taxable Canadian property":

     "a share of the capital stock of a public corporation if...not less than 25% of the issued shares...belonged to the non-resident person, to persons with whom the non-resident person did not deal at arm's length..."

Even though the "non-resident person" referred to in subparagraph 115(1)(b)(iv) of the Act is the non-resident partner, in our opinion, for the purpose of computing taxable income earned in Canada of the partners, the 25% ownership test is applied at the partnership level.

We hope our comments will assist you.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch