C. Tremblay (613) 957-2103
Attention: XXXX DEC 12 1988
Dear Sirs:
Re: Principal Business Corporations
This is in reply to your letter of October 18, 1988, requesting our view as to whether a corporation would qualify as a principal business corporation and not be restricted by the application of subsection 1100(11) of the Income Tax Regulations (the "Regulations") if its sole asset is an interest in a partnership whose principal business was the leasing, rental, development or sale, or any combination thereof, of real property owned by it.
Our Comments
In order for subsection 1100(11) of the Regulations not to apply to a partnership, all the corporate partners must meet the principal business test described in paragraph 1100(12)(a) of the Regulations. However, where a corporation does not own any real property in its own right and its only source of income is from its interest in the partnership, the corporation would generally be regarded as carrying on the principal business referred to in (a) below, for the purposes of subsection 1100(12) of the Regulations provided that:
(a) the principal business of the partnership throughout a particular year was the leasing, rental, development or sale, or a combination thereof, of real property held by it, and
(b) throughout the particular year referred to in (a) above, the principal business of the corporation was the holding of its interest in the partnership.
Where the partnership qualifies under subsection 1100(12) of the Regulations, the properties of the partnership will not be subject to the capital cost allowance restrictions under subsection 1100(11) of the Regulations.
We trust our comments are of assistance.
Yours truly,
ORIGINAL SIGNED BY
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch