Canco makes a loan to a partnership (“XXXXXXXXXX Partnership”) that is wholly-owned by an indirect U.S. parent of Canco (the general partner) and another non-resident partner within the group and whose business it is to make loans to group entities. That loan was subsequently repaid. In finding that s. 15(2) could be applied to the partnership, CRA stated:
The CRA did not succeed in the Tax Court of Canada (see Gillette v. The Queen, 2003 DTC 5078) which concluded that while a person could be connected to a shareholder of a corporation pursuant to subsection 15(2.1), it was not the same for a partnership. The Federal Court of Appeal also agreed with the taxpayer, but for different reasons. That is why we are still maintaining our position in our Interpretation 2003-0045851E5 and our comment in F2004-008411C6. We continue to believe that the term "person … connected with a shareholder of a particular corporation" as provided in subsection 15(2.1) may include a partnership.