5-911346
Dear Sirs:
This is in reply to your letter of May 17, 1991 concerning the rules in sections 4900, 5100 and 5102 of the Income Tax Regulations (the "Regulations") relating to small business investment limited partnerships ("SBILP") and eligible corporations.
Your enquiry relates to specific taxpayers involved in specific proposed transactions. As indicated in paragraph 21 of Information Circular 70-6R2, written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are the subject matter of an advance ruling request submitted in the manner set out in that Circular. The following comments are therefore of a general nature only.
By virtue of paragraph 4900(6)(b) of the Regulations, a qualified investment for a trust governed by a registered retirement savings plan includes a property that is an interest of a limited partner in a SBILP. A SBILP is defined in subsection 5102(1) of the Regulations and one of the requirements set out therein is that the partnership's only undertaking must be limited to the investment of funds in certain investments, one of which is a small business security.
Subsection 5100(2) of the Regulations lists the types of property that qualify as a small business security, provided the conditions set out in paragraphs 5100(2)(e) and (f) are met. Two types of property so listed are:
(a) a share of the capital stock of an eligible corporation, and
(b) a debt obligation of an eligible corporation where the debt obligation is one described in paragraph 5100(2)(b) of the Regulations.
An "eligible corporation" is defined in subsection 5100(1) of the Regulations and by virtue of that definition and the definition of "qualifying active business" in subsection 5100(1), a corporation would normally not be an eligible corporation where its business consists of leasing real property.
As indicated in (b) above, the corporation indebted to the SBILP must be an eligible corporation. If an ineligible corporation indebted to a SBILP amalgamated with another corporation and the amalgamated corporation is an eligible corporation, the debt obligation would qualify as a small business security if it is one described in paragraph 5100(2)(b) of the Regulations and the conditions set out in paragraphs 5100(2)(e) and (f) of the Regulations are met.
The above comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2. We trust however that they are of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate