11 December 1991 Income Tax Severed Letter 9123365 - Person Related to the Employer — Two 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.

24(1)                           5-912336
                                              D.S. Delorey
                                              (613) 957-8953

Attention: 19(1) December 11, 1991 Dear Sirs:

Re: Related Person — Partnership

This is in reply to your letter of August 20, 1991 concerning the reference in subparagraph 60(j.1)(ii) of the Income Tax Act (the "Act") to the term "or a person related to the employer".

More particularly, you are concerned with the implications of that term where an individual is, and was previously, employed by a partnership. In this regard, you cite a particular example and ask if we would consider the former employer/partnership to be a person and the two partnerships to be related notwithstanding that under the Act a partnership may not be a "person" for the purposes of paragraph 60(j.1) and subsection 251(2) of the Act, and that subsection 251(2) does not specifically address a situation involving two partnerships.

It appears that a specific transaction is involved. Where a transaction is proposed, confirmation of the tax implications arising therefrom should be sought by way of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R2. Where a completed transaction is involved, the enquiry should be addressed to the relevant District Taxation Office. We offer, however, the following general comments.

Paragraph 1 of Interpretation Bulletin IT-90 states that "A partnership is not a person, nor is it deemed to be within the meaning of the Act, notwithstanding that section 96 provides that the income of a member of a partnership is computed as if the partnership were a separate person resident in Canada." Accordingly, where the word "person" appears in the Act and deals with the calculation of income of the "person", subsection 96(1) includes the calculation of income of a partnership.

However, where the word "person" otherwise appears in the Act, the common law view which results in looking at the partners collectively is generally used. With this in mind and where the employer and former employer are partnerships, it is our view that the former employer will be a person related to the employer where all members of the former employer/partnership are related, within the meaning of subsection 251(2) of the Act, to all members of the employer/partnership. Where the relationship is otherwise, we are not prepared to express opinions on the tax implications other than in the context of an advance income tax ruling.

The fact that a payment might be paid by a former employer (partnership or otherwise) to an individual some 5-10 years following the individual's severance of employment would not, in and of itself, disqualify that payment as a retiring allowance. Furthermore, where the amount of a retiring allowance is shared by an individual's employer and former employer (e.g., each pays 50%), the Department would normally not seek to disallow a deduction to the former employer based solely on the fact that the individual has not performed any employment duties for that employer for several years. As indicated in section 67 of the Act, an amount is deductible to the extent that it is "reasonable in the circumstances". Accordingly, all circumstances are considered in determining the extent to which an amount is deductible. This determination if normally made after the return(s) for the year have been filed.

Our comments reflect an expression of opinion only and are not binding on the Department, as explained in paragraph 21 of Information Circular 70-6R2. We trust, however, that they are of assistance.

Yours truly,

for Director Financial Industries Division Rulings Directorate

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