The partners of a Quebec professional partnership (ABCD LLP) hold their partnership interests directly (Messrs. B and D) and through Holdcos (Holdco A of Mr. A and Holdco C of Mr. C). The shares of Serviceco (which provides its services exclusively to ABCD LLP and deals at arm’s length with each partner) are held directly by the three individuals excepts that Mr. D holds “his” shareholding through Holdco D. Which of the four partners can assign their portion of the business limit of the partnership to Serviceco? CRA first noted:
[G]iven that Serviceco exclusively provides services to ABCD LLP, Serviceco is not a partner of ABCD LLP, and at least one of Serviceco's shareholders has a direct or indirect interest in that partnership (Mr. A and Mr. C have an indirect interest, while Mr. B has a direct interest, in ABCD LLP), Serviceco is a "designated member" of ABCD LLP.
In finding that only Mr. B and not the other three partners would be able to assign to Serviceco all or any portion of their business limit that had been allocated to them by ABCD LLP, CRA stated:
Given that Mr. B is a partner of ABCD LLP and that he is also a shareholder of Serviceco, he will be able to assign all or any portion of the business limit which has been allocated to him by ABCD LLP … .
In the case of Mr. D, he is also a partner of ABCD LLP, but given that he is not a shareholder of Serviceco, he does not satisfy the condition provided in paragraph 125(8)(a). …
With respect to Holdco A and Holdco C, they are partners of ABCD LLP, but they are not shareholders of Serviceco … .