28 May 1990 Income Tax Severed Letter AC33014 - Non-arm's Length Transactions

19(1)                 3-3014
                                            R. Albert
                                            613-957-2098

May 28, 1990 19(1)

Re: Non-arm's length transactions

We are writing in reply to your verbal request for comments on the Department's position concerning transactions between non-arm's length parties.

In particular, you have requested comments concerning the deductibility of fees paid by a limited partnership to another party who does not deal at arm's-length with the general or limited partners of the partnership and we are prepared to provide the following. In general, where a limited partnership engages another party does to deal at arm's length with general partner of the partnership or some or all of its limited partners, the fees charged for such services would not be rendered non-deductible under the Income Tax Act, solely because of the non-arm's length relationship. However, such arrangements may be subjected to closer scrutiny upon audit to verify the reasonableness of the charges.

We trust that these comments will be of assistance.

Yours truly,

for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch