Principal Issues: Whether a limited partner's allocation of partnership income to a province or provinces is based on where the partnership earned the income.
Position: Yes.
Reasons: A limited partner is considered to carry on the business of a partnership and paragraph 96(1)(f) deems a partner to have income from the same source or sources as the partnership.
XXXXXXXXXX 2010-036762 J. Gibbons, CGA September 10, 2010
Dear XXXXXXXXXX :
Re: Provincial Allocation of Partnership Income by an Individual
This is in reply to your letter dated May 17, 2010, concerning the above-mentioned subject. In particular, you have questioned the validity of T5013's received by some individuals who are limited partners where there is an allocation of business income to other provinces or outside Canada.
Our Comments
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Also, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we are prepared to offer the following general comments.
A limited partner, like a general partner, is considered to carry on the business of a partnership. Accordingly, since paragraph 96(1)(f) of the Income Tax Act provides that a partner's income from a partnership is from the same source or sources as the partnership, a limited partner has the same allocation of net business income from the partnership as the general partner. This is consistent with the instructions in Guide T4068, Guide for the T5013 Partnership Information Return. The allocations indicated on a limited partner's T5013 must be used by a limited partner to determine his or her provincial allocation in accordance with the rules in Part XXVI of the Income Tax Regulations.
We trust these comments will be of assistance.
Yours truly,
G. Moore
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch