8 November 1989 Income Tax Severed Letter ACC8862 - Limited Partner At-risk Rules

November 8, 1989

Review Committee                   Resource Industries
                                     Section
                                   Allan B. Nelson
                                   957-8984

Subject:  Limited Partner At-risk Rules
          Paragraph 96(2.2)(2)(d) of the Act

Purpose

We are writing to request your direction concerning the possible application of paragraph 96(2.2)(d) of the Act in a fact situation on which we have been asked to provide an advance income tax ruling.

Facts

24(1)

Issue

24(1)

Significance and Analysis

Subsection 96(2.1) of the Act provides that the losses of a partnership allocated to a limited partner in his taxation year will be deductible by the partner only to the extent of the partner's at-risk amount as at the end of the fiscal oeriod of the partnership ending in that year, Therefore, any reduction in a partner's at-risk amount pursuant to paragraph 96(2.2)(d) directly effects the deductibility of that partner's share of Partnership losses for the year.

Under paragraph 96(2.2)(d) of the Act, subject to the exceptions noted therein, a taxpayer's at-risk amount is reduced where the taxpayer is entitled, either immediately or in the future, either absolutely or contingently to receive or obtain any amount or benefit granted for the purpose of reducing the impact of any loss that he may sustain by virtue of his being a member of the partnership or by virtue of his holding or disposing of his membership interest.

The amount of the at-risk reduction would be the same as was the amount or benefit that was granted for the purposes referred to above.

24(1)

21(1)(b)

Finance's Comments

1.        The June, 1986 Technical Notes issued by Finance state
          inter alia that "New Subsection 96(2.2) of the Act
          defines that at-risk amount of a limited partner at any
          particular time.  This at-risk amount is calculated as
          follows:...any amount or benefit to which the partner
          is entitled, where the amount or benefit is intended to
          protect him from the loss of his investment."

2.        21(1)(b)

Legal Opinion

          23

Previous Departmental Positions Taken

We are not aware of any positions previously taken by the Department specifically on this issue. However, an opinion was given to 19(1) dated November 23, 1988 (a copy of which is attached herewith) to the effect that an indemnification given by a particular general partner to other general partners in the same partnership against any debts and obligations incurred as a result of the particular partner acting outside of his authority granted under their partnership agreement would not normally by viewed as an amount or benefit described in paragraph 96(2.2)(d) of the Act.

23

Taxpayer's Representations

24(1)

Alternatives 21(1)(b)

Recommendations

21(1)(a)

Chief Resource Industries Section Bilingual Services and Resource Industries Division Rulings Directorate

Enclosure