5 October 2012 APFF Roundtable, 2012-0453991C6 F - Action admissible de petite entreprise
Principal Issues: Does the CRA's response remain the same as that provided in Technical Interpretation 9636835?
Position: Yes
Reasons: see response
Federal Tax Roundtable, 5 October 2012
2012 APFF Conference
Question 6
Qualified small business corporation share -- interest in a partnership
In Technical Interpretation 9636835, the CRA had to determine whether the shares of a corporation that held only an interest in a partnership could be eligible as qualified small business corporation shares. In doing so, the CRA stated that respecting the definition of "small business corporation" and the criterion that all or substantially all of the FMV of the assets is attributable to assets that are used principally in an active business carried on primarily in Canada, it was necessary to analyze the assets of the partnership.
This interpretation is consistent with the Immeuble Allard case (footnote 1) where the Court of Appeal found that a partnership was not a separate legal entity, did not have legal personality and did not have a separate patrimony.
A breach opened in the Ville de Laval v. Medical Polyclinic Fabreville, s.e.c. decision (footnote 2) where the judge had concluded that a limited partnership possesses a patrimony separate from those of its members as long as it was adequate, even though the limited partnership was not a legal person.
More recently, in the Ferme CGR enr., s.e.n.c. (Syndic de) case, 2010 QCCA 719, the Court of Appeal concluded that such a partnership had a separate patrimony from its partners and that the partners did not have a right of ownership in the property of the partnership.
Question to the CRA
a) In the light of the jurisprudence, would the CRA's decision be the same as that rendered in the above technical interpretation where a corporation holds only a partnership interest and, if so, can you explain to us your position in relation to the judgments cited above?
b) If the answer in a) is no, should we understand that the CRA considers that the partnership has a separate patrimony and that the shares would accordingly no longer qualify since a share in a partnership is not a qualified property?
CRA Response
The CRA is of the view that the concept of an autonomous patrimony of a partnership and its application to federal taxation is one which raises numerous questions. Accordingly, the CRA will continue monitoring the evolution of this issue.
Despite these developments, the CRA considers it preferable for the time being to continue applying the position stated in Technical Interpretation 9636835 in determining if the conditions contemplated in the definition of "small business corporation" are satisfied.
Alexandro Pace
(613) 952-1506
2012-045399
October 5, 2012
FOOTNOTES
Due to our system requirements, footnotes contained in the original document are reproduced below:
1 Ville de Québec v. La Cie d'immeubles Allard Ltée [1996] RJQ 1566, QCCA 5712
2 2007 QCCA 426