Revenue Canada Taxation
R. Langevin (613) 957-2138
JAN 23 1989
Dear Sirs:
Re: Investment Income and subsection 110.6(1) of the Income Tax Act (the "Act")
This is in reply to your letter of October 11, 1988 requesting a technical interpretation on the definition of investment income within the meaning ascribed by subsection 110.6 of the Act. Specifically, you have asked in what circumstances, if any, a partner, who is not a specified partner as that term is defined in subsection 248(1) of the Act, may lend money to a partnership and receive property income which would qualify as investment income for the purposes of the aforementioned definition.
We are of the opinion that, provided the money is used by the partnership to produce income from a business or property, the interest is reasonable and the loan is not a contribution of capital by the partner, the interest paid by the partnership may be characterized as a business expense to it and as property income, that is from interest, to the partner. Of course, it is a question of fact to be determined in each case whether the interest income can properly be so characterized and thus we can not provide guidelines of universal application. If the amount could, in the relevant circumstances, be characterized as property income, it would come within the meaning of investment income for the purposes of the definition in subsection 110.6(1),of the Act.
This opinion is our best interpretation of the law as it applies generally and may not be appropriate to the facts of a particular case and, accordingly, is not binding upon the Department.
Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch