19 January 2007 Internal T.I. 2006-0216451I7 F - Fondation privée investissant dans une S.P. -- translation

19 January 2007 Internal T.I. 2006-0216451I7 F - Fondation privée investissant dans une S.P.

Principal Issues: [TaxInterpretations translation] Is our position set out in document number E2006-016742 still valid following the taxpayer's additional representations?

Position: Yes.

Reasons: In line with our long-standing position.

								January 19, 2007

	HEADQUARTERS 				      HEADQUARTERS
      Mr. Daniel Racine					Income Tax Rulings Directorate
	Charities Directorate	  
								Guy Goulet, CA, M.Fisc.
								986-8098

								2006-021645

Request for interpretation - Private foundation investing in a foreign partnership

This is further to your email of December 1, 2006, and our memorandum of June 27, 2006, number 2006-016742. In that memorandum, we indicated to you that in the situation described, we were of the view that a private foundation located in Quebec (the Foundation) would carry on business through a foreign partnership (FP) if it were determined that the FP was a partnership for the purposes of the Income Tax Act (the "Act") and that, as a result, its registration might be subject to revocation by virtue of paragraph 149.1(4)(a).

In response to our position, the Foundation argued in a letter of November 24, 2006, that the question of whether or not the FP was a partnership for the purposes of the Act was not a relevant issue in this case. Rather, the legal relationships created by the relevant laws and contracts must be analyzed in order to establish whether the business is carried on by an entity separate from its members. In the Foundation’s view, the FP is a separate legal entity from its members under the statutory provisions of the Delaware Revised Uniform Partnership Act (DRUPA) by virtue of which it was created and consequently it is the FP that operates the business and not the members.

You are asking us whether, in the light of the arguments submitted by the Foundation, our opinion of June 27, 2006, was still valid.

We confirm that our opinion is still valid.

In addition, we have on several occasions in recent years stated our position on the classification of DRUPA entities for the purposes of the Act. In this regard, the following is an excerpt from Income Tax Technical News No. 34, dated April 27, 2006, which sets out our position on topics of current interest that were prepared as discussion topics for the Canadian Tax Foundation's annual conference held in Vancouver on September 27, 2005:

In the Income Tax Technical News No. 20, dated June 14, 2001, the CRA stated that the attributes of an entity formed under the Delaware Revised Uniform Partnership Act ("DRUPA") more closely resemble those of a partnership under Canada's common law than those of a Canadian corporation, and that accordingly, an entity governed by DRUPA would generally be treated as a partnership for Canadian income tax purposes. The CRA reiterated this view at the 2002 CTF annual conference (later published in Income Tax Technical News No. 25, dated October 30, 2002) that DRUPA partnerships would be treated as partnerships under the Act provided they carried on a business for profit.

Question 1

At the 2005 IFA conference, the CRA mentioned it was revisiting whether a limited partnership governed by DRUPA was a partnership or a corporation for Canadian tax purposes. Could you explain why the CRA would choose to revisit this issue?

Response 1

It may appear unusual for the CRA to revisit a question that was dealt with so recently. Earlier this year, the Income Tax Rulings Directorate was asked to review a relatively complex series of transactions that involved a DRUPA entity, and one of the questions that came up in the course of this review was whether the CRA position in respect of DRUPA was correct in law. Following our review, the Directorate concluded that the existing position should stand and that the separate legal entity clause contained in foreign partnership legislation should not, in and by itself, preclude an entity from being treated as a partnership for purposes of the Act. However, entities governed by the DRUPA that are created for non-profit purposes are not considered partnerships for the purposes of the Act.

Question 2

Would this position apply equally to a partnership that was formed under the Delaware Revised Uniform Limited Partnership Act ("DRULPA"), instead of the DRUPA.

Response 2

This position should also normally apply to a partnership that was formed under the DRULPA provided its members carry on business in common with a view to profit.

We hope that our comments are of assistance.

Best regards,

Ghislain Martineau
for the Director
Financial Sector and Exempt Entities Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch