Principal Issues: Whether, before making the final distribution to the limited partners, a certificate under subsection 159(2) needs to requested for only the partnership itself or for the partnership and each partner.
Position: One notification of disposition can be filed and clearance certificate requested on behalf of the partnership provided that the required information is filed together with the request.
XXXXXXXXXX 2011-041049 Richard Aronoff 613-941-7239 XXXXXXXXXX
October 4, 2011
XXXXXXXXXX
Re: Application of subsection 159(2) to Dissolution of a Partnership
This is in reply to the email of June 15, 2011 from XXXXXXXXXX of your firm concerning the application of subsection 159(2) to the dissolution of a partnership.
The facts are that a limited partnership with property in Canada is being dissolved. The property owned by the partnership consists largely of real property that is primarily rental property that has been or is to be liquidated. There is a large number of limited partners, who reside in one or more foreign countries, and who will receive a distribution representing their proportionate share of the partnerships liquidated assets, after payment of outstanding liabilities. The dissolution is being managed by an administrator who seeks to avoid liability under subsection 159(3) on the distribution of the liquidated assets to the various partners by obtaining the required clearance certificate(s).
Your firm is requesting an interpretation on whether, before making the distributions to the limited partners, a certificate under subsection 159(2) needs to requested for only the partnership itself or for the partnership and each partner.
Subsection 159(3) of the Act provides that where a clearance certificate under subsection 159(2) has not been obtained and the legal representative of a taxpayer distributes property that was under the person's control, the legal representative is personally liable for unpaid taxes, interest and penalties to the extent of the value of the property so distributed. Subsection 248(1) defines a legal representative to include an administrator or other like person administering, winding up, controlling, or otherwise dealing in a representative or fiduciary capacity with the property that belongs or belonged to, or that is or was held for the benefit of, the taxpayer. In this case, the administrator would be the legal representative of all of the partners, who are taxpayers.
IC 72-17R5 Procedures Concerning The Disposition Of Taxable Canadian Property By Non-Residents Of Canada - Section 116 provides in paragraph 10 that for partnership dispositions, it is the Canada Revenue Agency's (CRA) policy to accept one notification of disposition filed on behalf of all partners. Along with the notice, the following information is required to be filed: a complete listing of the non-resident partners disposing of the property together with their Canadian and foreign addresses, identification numbers, percentage ownership, and their portion of the payment allocation. If no account information is available for a non-resident partner, the CRA will assign an identification number. The CRA will then issue a certificate of compliance to each non-resident partner. Each partner is required to file a tax return and, as such, each partner's final tax liability will be determined when the tax returns are filed and assessed.
For purposes of the subsection 159(2) clearance certificate, one clearance certificate can be requested on behalf of the limited partnership provided that this same information is provided. Included with the information pertaining to non-resident partners would be the same information relating to any resident partners. Upon review, the CRA may issue one certificate which will be issued in the name of the partnership. One amount of remittance can be submitted on behalf of the partnership and this amount will be allocated to each partner's account so the amount can be applied to their individual return when they file. Circular IC 82-6R2, Clearance Certificate, explains the CRA's procedures for obtaining a clearance certificate.
Should you have any queries or require additional information in regard to this matter, please do not hesitate to contact Richard Aronoff at the telephone number provided at the outset of this letter.
Yours truly,
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Income Tax Rulings Directorate