SPECIALTY RULING AND RULING DIRECTORATES
ORIGINATING SECTION- BILINGUAL SERVICES
OFFICER - Michèle Vallée
DATE: March 9, 1987
ISSUE
Whether a partnership could be considered as a "qualified limited partnership" even it does not issue distinct units describing the interests of the limited partners.
SECTION of the ACT or REGULATION etc
Subsection 5000(7) of the Regulations
Subject
Meaning of "units" in limited partnership
Problem
Paragraph (d) of the definition of "qualified limited partnership" as set forth in subsection 5000(7), prescribes that the interests of the limited partners should be "described by reference to units of the partnership that were identical in all respects".
This requirement would not be met when units are issued jointly by two partnerships.
Position
We are prepared to accept a liberal interpretation of the term "unit", as though it were a mere reference to a unit of measure. Consequently, provided that the interest of these limited partners are identical in all respects, a partnership would qualify under paragraph (d) of Regulation 5000(7) even if the units representing the said interests also describe an interest in another partnership.
REVIEW COMMITTEE
M. Vallée
Bilingual Services
SectionRE:
Meaning of "units" in a limited partnership.
Section of the Regulations
Paragraph (d) of the definition of "qualified limited partnership" as set forth in XXXX
Purpose
To confirm the interpretation of said paragraph (d) in view of the comments obtained from the Department of Finance.
Type of Referral
Request for opinion from XXXX
Analysis of Legislation
One of the criteria to meet the definition of "qualified limited partnership" in Regulation 5000(7) is that the interests of the limited partners be "described by reference to units of the partnership that were identical in all respects".
Problem
Since "unit" is not a term of art, must we interpret it liberally and as though it were a reference to a unit of measure or should we give it the meaning of a negotiable instrument as defined by the Stock Exchange. We are prepared to accept the liberal interpretation.
In the present instance, units are issued jointly by two partnerships. Under the terms of the Limited Partnership Agreement, the units represent an aggregate of interests in the particular partnership plus interests in another partnership. A subscriber to interests of the particular partnership is obligated to acquire interests in another partnership, the interests of both partnerships being represented by a joint unit. Consequently, it would seem that this partnership would not comply with the wording of Regulation 5000(7) which stipulates that the interests of the limited partners be described by reference to units of the partnership that were identical in all respects.
Comments
The Department of Finance has indicated verbally that the sole purpose of paragraph (d) of said Regulation is to ensure that the allocation of the profits and losses on a unit basis is identical for each partnership unit. An arrangement whereby all the profits would be allocated to a tax-exempt partner and losses to other taxable partners would not qualify under the definition of qualified limited partnership, according to the Department of Finance.
Finance has acknowledged that they did not intend to obligate limited partnerships to issue units, nor to apply Regulation 5000(7) exclusively to interests in a partnership that could be negotiated on the market.
Conclusion
We recommend that, in the present instance, the partnership be considered as a "qualified limited partnership" for the purposes of Regulation 5000(7).
Since the wording of the Regulation would preclude a partnership which has not issued units to qualify under the rules, we suggest to recommend to the Department of Finance to delete the reference to "units" in the definition under discussion.
Section Chief Bilingual Services Section Bilingual Services and Resource Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch