| 24(1) | File No. 5-9609 |
| C. Tremblay | |
| (613) 957-2095 |
Attention: 19(1)
June 19, 1990
Dear Sirs:
This is in reply to your letter of February 14, 1990 requesting our opinion in the following hypothetical situation. We apologize for the delay in our response.
The facts you describe are as follows:
1. A limited partnership is formed for the sole purpose of carrying on a business of breeding, raising and selling thoroughbred racehorses.
2. The limited partnership will incur certain expenses (hereinafter referred to as "financing expenses") related to the issuance, sale and marketing of units of the partnership, including distribution fees and commissions paid to an agent or dealer in securities.
3. All of the partners of the limited partnership will elect jointly under subsection 28(1) of the Income Tax Act (the "Act") to have the income of farming business computed in accordance with the cash method.
Notwithstanding paragraph 20(1)(e) of the Act, you ask whether the financing charges will be fully deductible in the year they are paid, by virtue of paragraph 28(1)(e) of the Act.
Our Comments
Although you have asked for a technical interpretation, it would appear that a proposed transaction by a particular taxpayer is involved. Thus this matter would appear to be a more appropriately the subject of an Advance Income Tax Ruling. We are however, prepared to provide some general comments.
Assuming that the proper elections are made under section 28 of the Act to report income on the cash basis, we would agree that the partnership may deduct the said expenses in the year they are paid. However, the total deductions for all years to date in respect thereto may not exceed the total deductions that the partnership would have received for all years under paragraph 20(1)(e) of the Act in respect of the said expenses incurred to date if the partners had not elected under section 28 of the Act.
The above comments are only expressions of opinion on the application of the Income Tax Act to the hypothetical situation and, as such, are not binding upon the Department.
We trust our comments are of assistance.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch