Dear Sirs:
Re: Technical Interpretation of Draft Legislation Partnership as a Person for Proposed Amendments to Section 44
We are writing in reply to your letter of July 25, 1991 wherein you requested A technical interpretation of draft legislation relating to section 44 of the Income Tax Act (the "Act").
You have indicated that you are dealing with an actual case where a lady owns some farm property and allows her husband and her son to use the property in their farming business which they carry on as a partnership. She now intends to sell this property and to buy replacement property which will also be used by the partnership of the husband and son. There is no rental arrangements involved and the property is used in an active business. You are concerned as to whether the phrase "a person related to the taxpayer" in proposed paragraphs 44(5)(a) and (b) would exclude a partnership.
It is obvious that you are dealing with an actual situation which should be the subject of an advance income tax ruling should the draft legislation be enacted in its present form. However, we are prepared to provide the following comments.
Paragraph 1 of Interpretation Bulletin 90 states that "A partnership is not a person, nor is it deemed to be within the meaning of the Act, notwithstanding that section 96 provides that the income of a member of a partnership is computed as if the partnership were a separate person resident in Canada." Accordingly, where the word `person' appears in the Act and deals with the calculation of income of the `person' subsection 96(1) includes the calculation of income of a partnership. However, where the word `person' otherwise appears ln the Act, generally the common law view which results in looking at the partners collectively is used. Paragraph 251(2)(a) indicates that "individuals connected by blood relationship, marriage or adoption" are related persons. With respect to proposed paragraph 44(5)(a) and (b), in our view, where every member of a partnership is related to a taxpayer, the partnership would satisfy the requirements of "a person related to the taxpayer".
We trust that our comments will be of assistance.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch