Specified Member

See Also

Granby Togs Ltd. v. M.N.R., 58 DTC 1082 (Ex. Ct.)

The Minister assessed the taxpayer for excess profits tax on the basis that it carried on a business formerly operated by a partnership, and that the individual who held virtually all the shares of the taxpayer ("Zavalkoff") and who along with two other family members, had been an equal partner of the partnership, had a "substantial interest" in both the taxpayer and the partnership.

Before dismissing the appeal of the taxpayer, Fournier, J. quoted with approval of passage from Palser v. Grinling [1948] 1 All ER 1 (HL) at 11, including a statement that "one of the primary meanings of the word ["substantial'] is equivalent to considerable, solid, or big" and then stated (at p. 1084):

"In the present case, wherein three persons (the father and two sons) are the only partners in the partnership, all three having an equal interest and taking an equal part in the operations of the business of the partnership, in my opinion, each partner may be said to have a considerable and solid interest in the business; in other words, a substantial interest though they do not have a majority or controlling interest."

Lauger c. La Reine, 2008 DTC 3741, 2007 TCC 650 (Informal Procedure)

The performance by the first taxpayer of certain exercises on diskettes she was sent by a partnership in filling out a participation form in that regard was not enough to avoid her being a specified member of the partnership, and additional activities engaged in by the second taxpayer were performed by her in her capacity of employee of a corporation that was contracting with the partnership rather than in her capacity of partner. Accordingly, both taxpayers were specified members.

Brillon v. The Queen, 2008 DTC 3445, 2006 TCC 76 (Informal Procedure)

The taxpayers were specified members of a partnership. First, with respect to subparagraph (b)(i) of the definition, they were not "actively engaged" given the absence of a role in the partnership's decisions. Furthermore, even if they were active partners, they did not satisfy the "regular, continuous and substantial" test given that their only activity was to complete a questionnaire.

Rouleau c. La Reine, 2007 DTC 1619, 2007 TCC 338 (Informal Procedure)

In finding that the taxpayer was a specified member of a partnership that had been formed only for the purposes of flowing R & D deductions out to investors and which had no significant activity, Archambault J. noted (at para. 38):

"In my view, it is completely contrary to the intent of the Act to argue that one possible reason for Mr. Rouleau's lack of activity is the fact that the Cablotel partnership was engaged in only a small amount of activity. The reality is that in order to be excluded from the concept of passive specified member, one must show that one has been active, and, if there was no reason to be active, this would constitute a circumstance intended to be caught by the provision."

Administrative Policy

11 October 2013 APFF Roundtable, 2013-0495861C6 F - Question 20 - APFF Round Table

specified member status determined re involvement in daily management or activities

In the course of a general discussion of negative ACB issues for a partner or limited partner, CRA stated (TaxInterpretations translation):

[A] partner generally will be actively engaged in the activities of a partnership under the definition of "specified partner" in subparagraph (b)(i) of subsection 248(1) when directly involved in the day-to-day management and/or in the daily activities of the business of the partnership, other than financing, and dedicates time, work and energy in the pursuit of the business on a regular, continuous and substantial basis.

1996 Calgary Roundtable Q. 24, 5-961688 -

A partner's participation in a management committee that sets budgets and makes decisions on an exception basis only (e.g.,where the decision in question exceeds the managing partner's operating authority) would not be considered, by virtue only of such activities, to be actively engaged in the partnership business.

1995 International Fiscal Association Conference, Q. 8 (C.T.O. "6363-1 Foreign Affiliate - Specified Member of Partnership")

"A person is actively engaged in the business of a partnership for the purposes of the definition of 'specified member' in subsection 248(1) of the Act, where that person is directly involved in the management and/or the daily activities of the business and where that involvement takes place on a regular, continuous and substantial basis throughout the period under consideration... . As a general rule, employees of the member affiliate must devote time and effort to the partnership business in addition to the capital contribution made by the member and the member's share in the income of the partnership would therefore normally not be determined solely on the basis of its capital contribution"

14 February 1994 External T.I. 7-933598 -

Re criteria for determining whether a partner is a specified member.

1992 A.P.F.F. Annual Conference, Q. 17 (January - February 1993 Access Letter, p. 56)

Partners whose only involvement in the partnership business is to answer surveys and to meet from time to time with persons in charge of the SR&ED projects being undertaken by the partnership in order to be informed and to have decisions and budgets approved, would not be considered to be specified members. A person is actively engaged in a business when that person is directly involved in the management and/or day-to-day activities of the business period.

IT-73R4 "The Small Business Deduction - Income from an Active Business, a Specified Investment Business and Personal Services Business".

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