Regulation 808

A non-resident corporation owns an interest in a holding partnership (Partnership A), in turn owning an interest in Partnership B, which carries on business in Canada through a permanent establishment. Partnership A’s sole activity is holding its interest in Partnership B. The non-resident corporate partner would be subject to tax under Part XIV of the Act (“Branch Tax”) on its share of Partnership B’s taxable income. Could it look through Partnership A to take into consideration Partnership B’s properties when calculating its investment allowance u;nder s. 219(1)(l) (the “Allowance”)? CRA responded:

Having given consideration to the purpose of the Branch Tax and noting that a non-resident corporation that is a member of a top-tier partnership would be subject to Branch Tax in respect of its share of taxable income earned through a lower-tier partnership, in our view, it is reasonable to consider that the corporation will also be considered to be a member of a lower-tier partnership for the purpose of subsection 808(4) of the Regulations. As such, in computing its Allowance, a corporate partner would include its share of the qualified investment in property in Canada owned by a lower-tier partnership of which it is considered to be a member.

In the scenario you presented, the non-resident corporate partner may, when calculating its Allowance … “look through” Partnership A to take into consideration Partnership B’s properties. Accordingly, the non-resident corporate partner would have two amounts included in the computation of its share of the partnerships’ qualified investment in property in Canada pursuant to paragraph 808(4)(b) of the Regulations: an amount for its proportionate share of Partnership A’s qualified investment in property in Canada; and an amount for its proportionate share of Partnership B’s qualified investment in property in Canada.