Principal Issues: The representative has asked for a minor change to a ruling given with respect to the active business income of a professional corporation pursuant to a contract to provide professional services to a partnership of which the principal shareholder is a member. The change is to amend the allocation formula for both Electing and Non-Electing Partners so that the formula also takes into account the particular partners' capital contributions.
Position: The change was accepted.
Reasons: Similar to other rulings.
XXXXXXXXXX 2010-035718 XXXXXXXXXX , 2010
Dear XXXXXXXXXX :
Re: Supplementary Advance Income Tax Ruling
XXXXXXXXXX (the "Partnership")
XXXXXXXXXX (the " Electing Partners")
We are writing in response to your recent letter in which you requested amendments to Advance Income Tax Ruling 2009-031826 (the "Ruling"). Terms defined in the Ruling have the same meaning when used in this letter.
As requested in your letter, the following amendments have been made to the Ruling:
Paragraph 6(e) will be replaced by the following:
The formula for the allocation of Income for a Taxation Year will be amended to provide that an Electing Partner's allocation of Income for a Taxation Year will be dependent solely on the Electing Partner's capital contribution to the Partnership and factors (including time) connected to the Non-Professional Services carried out by the Electing Partner on behalf of the Partnership. For greater certainty, the Partnership Agreement will make it clear that the calculation of an Electing Partner's Income for a Taxation Year will not take into account any Professional Services provided by the Electing Partner's ProCorp, nor will it take into account any time spent by the Electing Partner performing Professional Services in his or her capacity as an employee of his or her ProCorp.
Paragraph 6(f) will be replaced by the following:
A provision will be added to ensure that all Non-Electing Partners will continue to provide their Professional Services directly to the Partnership. Further, the Partnership Agreement will clarify that a Non-Electing Partner's allocation of Income for a particular year will be based on the Non Electing Partner's capital contribution to the Partnership and factors connected to the Professional Services and Non-Professional Services carried out by the Non-Electing Partner on behalf of the Partnership.
We confirm that the changes described above will not affect the Ruling, which will continue to be binding on the CRA within the constraints set out therein.
Yours truly,
XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch