In the first scenario, Mr. S and SENC-V (a general partnership) hold interests in SENC-SV (another general partnership) of 90% and 10%, respectively. Two individuals hold partnership interests in SENC-V of 1% and 99%, respectively, with the second individual (Mr. V) devoting himself on essentially a full-time basis to managing SENC-V.
In the second scenario, Mr. A and a corporation held by Mr. B hold partnership interests in SENC-AB of 90% and 10%, respectively.
In the first (or second) scenario, is SENC-V (or the corporation) actively engaged in the business of SENC-SV (or SENC-AB) given that Mr. V is actively engaged in the activities of SENC-SV (and Mr. B takes care of all of the management of SENC-AB)?
CRA responded:
[I]n determining whether a partnership (where that partnership exists), which is itself a partner of another partnership, is actively engaged in the activities of that other partnership … it is possible to take into account the degree of involvement of the partner in the activities of the partnership subject, inter alia, to the partnership agreements involved.
… [S]ubject inter alia to the partnership agreements involved, the more Mr. V is involved in the management and/or day-to-day business of SENC-SV, the less likely it will be that SENC -V will be considered a specified member … .
Regarding the second situation … [a]t first glance, we are not persuaded that it is readily apparent that a corporation that is a member of a partnership may be actively involved in the business activities of a partnership on a regular, continuous and substantial basis throughout the partnership's fiscal periods. On the other hand … it would be possible to take into account the degree of involvement, among others, of the directors and employees of the corporation to verify whether the corporation actively engages in the partnership’s business.