7 March 1991 Income Tax Severed Letter - Capital Gains Deduction - Investment Expense and Investment Income

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.

Dear Sirs:

Re: Subsection 110.6(1) of the Income Tax Act (Canada) (the "Act")

We are writing in response to your letter of January 15, 1991 wherein you requested our comments on the definitions of investment expense and investment income contained in subsection 110.6(1) of the Act in the context of the following situation:

• 1. A taxpayer incurs interest expense on borrowings used to acquire an interest in a professional partnership in which the taxpayer is active. The interest expense is deductible from income pursuant to paragraph 20(1)(c) of the Act.
• 2. The partnership income is derived either solely from an active business or from a combination of active business and property. Active business, as used here and subsequently, has the meaning assigned by subsection 248(1) of the Act.

You have asked whether the interest expense is considered an investment expense and the partnership income is considered investment income for the purposes of subsection 110.6(1) of the Act.

Comments

• 1. In the situation where the partnership derives its income solely from an active business, the interest expense would not be considered an investment expense and the partnership income would not be considered investment income for purposes of subsection 110.6(1) of the Act.
• 2. In the situation where the partnership has both income from an active business and income from property, the portion of the interest expense reasonably attributable to the taxpayer's share of the property income would be considered an investment expense and the taxpayer's share of the partnership's property income would be considered investment income for purposes of subsection 110.6(1) of the Act.

The comments expressed are not advance income tax rulings and are not considered binding on the Department, in respect of any taxpayer, in accordance with paragraph 21 of Information Circular 70-6R2 dated September 28, 1990.