3 April 1992 Roundtable, 9209540 F - Old Fts Rules - Partnership

April 3, 1992

SUBJECT:  OLD F.T.S. RULES - SUBPARA. 66.1(6)(A)(V).

Question by: Dawn Temple, Tax Avoidance Section

Calgary D.O.

QUESTION

The "old" flow-through share rules are contained in subparagraph 66.1(6)(a)(v) which states that Canadian exploration expense ("CEE") of a taxpayer means any expense incurred after May 6, 1974 that is:

(v)      any expense referred to in any of subparagraphs (i) to (iii.1) incurred by the taxpayer pursuant to an agreement in writing with a corporation, entered into before 1987, under which the taxpayer incurred the expense solely as consideration for shares, other than prescribed shares, of the capital stock of the corporation issued to him or any interest in such shares or right thereto,

Where a limited partnership enters into a flow-through share agreement with an exploration corporation, the reference to the "taxpayer" in subparagraph 66.1(6)(a)(v) is to the limited partnership.

It is considered that since a partnership is not included in the definition of taxpayer, then subparagraph 66.1(6)(a)(v) cannot apply to the partnership.

COMMENTS

The Department's administrative practice has been to consider a partnership to be a taxpayer for purposes of subparagraph 66.1(6)(a)(v).  This position was necessary in order for the "old" flow-through share rules to work in accordance with the legislators' intentions where a partnership entered into the flow-through share agreement.  A copy of a briefing memorandum outlining the Department's administrative positions with respect to the "old" flow-through share rules is being provided to you.

The administrative practice that a partnership is a taxpayer for purposes of the flow-through share rules was legislated in subsection 66(16).  Subsection 66(16), applicable with respect to fiscal periods ending after February, 1986, deems a partnership to be a person for purposes of the "new" flow-through share rules in subsection 66(12.6).

ISSUE SHEET

1992 Calgary D.O EnquiriesIssue: "Old" F.T.S. Rules

66.1(6)(a)(v)                   

March 31, 1992

This request is for comments with respect to whether a subparagraph 66.1(6)(a)(v) applies to a partnership because the subparagraph refers to a "taxpayer" and a partnership, in the D.O's view, is not a taxpayer. Taxpayer is defined at subsection 248(1) which states: "taxpayer" includes any person whether or not liable to pay tax; The D.O's concern arises because a partnership is not a "person" within the definition of this term in subsection 248(1).

The question of whether a partnership is a taxpayer was resolved in prior years when an administrative position was adopted that a partnership is a taxpayer for purposes of subparagraph 66.1(6)(a)(v).  See briefing memorandum prepared for Mr. R. Beith which outlines the administrative positions being taken with respect to the old flow-through shares.  The position is also consistent with subsection 66(16), applicable with respect to fiscal periods ending after February, 1986, which deems a partnership to be a person for purposes of the "new" flow-through share rules in subsection 66(12.6).

This position has been adopted in advance rulings given to 1986 and prior years' flow-through share partnerships such as       24(1)