Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
whether an inactive retired partner to an accounting firm may file up to June 15 and whether a limited partner in a partnership which is carrying on an active business is also entitled to file later than April 30 under proposed amendments to para 150(1)(d). The limited partner is a passive investor in the business.
Position:
retired accouting partner can file for June 15, limited partner in a partnership which is carrying on an active business cannot
Reasons:
A retired partner with an income interest must report income on the same basis as the other partners (96(1) applies). In the second example, such individuals are precluded from filing later because of the provisions in draft clause 150(1)(d)(ii)(A) which states "unless the expenditures made in the course of carrying on the business are primarily, or are primarily the cost or capital cost, tax shelter investments (within the meaning assigned by subsection 143.2(1))..."
960754
XXXXXXXXXX Sandra Short
Attention: XXXXXXXXXX
June 3, 1996
Dear Sirs:
Re: Meaning of "carried on a business"
This is in reply to your letter dated February 20, 1996, which requests an interpretation of the phrase "carried on a business" as found in the proposed amendment to paragraph 150(1)(d) of the Act.
The proposed amendment to paragraph 150(1)(d) extends the due date for filing a tax return to June 15 of the year following a taxation year in the case of an individual (other than a trust) who "carried on a business in the year, unless the expenditures made in the course of carrying on the business are primarily, or are primarily the cost or capital cost of, tax shelter investments (within the meaning assigned by subsection 143.2(1))...".
You have asked that we consider the example of a retired partner in an accounting partnership who may be receiving continuing retirement type income but who is no longer actively involved in the accounting business. Secondly, you have asked that we consider a limited partner in a partnership which is carrying on an active business. The limited partner is typically not actively involved in the business which is managed by an unrelated general partner. The limited partner is, in substance, a passive investor in the business.
In the first example cited by you, we assume that you are referring to a situation where a retired partner has an income interest (as opposed to a residual interest) in the partnership. A retired partner has an income interest pursuant to subsection 96(1.1) of the Act, if the principal activity of the partnership is carrying on a business in Canada and all the partners agree to allocate a share of the income or loss of the partnership to the retired partner. Any income or loss allocated is included in the retired partner's income for the taxation year in which the particular fiscal period of the partnership for which the allocation was made ends. For the purpose of such allocations, the retired partner is deemed to be a member of the partnership and the partnership rules in subsection 96(1) apply. It is our opinion that, in such situations, the retired partner would be able to file his or her income tax return on or before June 15 of the year following the taxation year.
We believe that, in your second example, such individuals are precluded from filing their returns of income after April 30 because of the provision in draft clause 150(1)(d)(ii)(A) which states "unless the expenditures made in the course of carrying on the business are primarily, or are primarily the cost or capital cost of, tax shelter investments (within the meaning assigned by subsection 143.2(1))...."
We trust our comments will be of assistance to you.
Yours truly,
John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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