See Also
Major v. Brodie & Anor, [1998] BTC 141 (Ch. D)
The taxpayers used borrowed money to make a contribution of capital to a partnership (Skeldon Estates) which was a member of a second partnership (Murdoch) which carried on a farming business utilizing farms owned by Skeldon Estate and the second partner of Murdoch.
The Inspector of Taxes failed in a submission that the taxpayers were not eligible for an interest deduction under s. 362(1) of the Income Incorporations Taxes Act 1988 on the ground that the borrowed money contributed to Skeldon Estate was not "used wholly for the purposes of the trade ... carried on by the partnership [i.e., Skeldon Estate]" but, rather, was used for the purposes of the trade carried on by Murdoch. Park J. held (at p. 152) that as "a trade carried on by a partnership is a trade carried on by its members and by each of them" and the borrowed money was "used wholly for the purposes of the trade carried on by W. Murdoch & Son", it followed "that the money [was] thereby used wholly for the purposes of the trade carried on by the partners in W. Murdoch & Son." He went on to indicate (at p. 153) that under English law, where A and B are the partners in partnership X, and X and another person (C) form another partnership, partnership Y, A and B are considered to be partners in partnership Y in their capacity as members of partnership X.
Administrative Policy
2013 Ruling 2013-0487911R3 - Mortgage Investment Corporation
underline;">: Background. Opco, which qualifies as a MIC under s. 130.1(6), acquired real property (the Property) on foreclosing on a mortgage. Parent1 together with his children is a significant shareholder. Parent1 is the sole director of the manager of Opco.
Transactions
Opco will transfer the Property to LP in consideration for units of LP, with LP then managing and developing the Property. The sole shareholder, director and office of the general partner (GP Co) of LP will be a relative of Parent1, and GP Co's articles prohibit Opco from owning its shares. The Partnership Agreement will prohibit LP from acquiring any (foreign) property listed in s. 130.1(6)(c).
GP Co will be solely responsible for the management and control of the LP and will conduct the affairs of LP in such a manner that the liability of the limited partner will be limited. … Opco may advance funds to the LP from time to time for working capital and development… on arm's length commercial terms… .
Ruling
S. 253.1 will apply such that the acquisition of the LP units by Opco will not cause Opco to be carrying on LP's business for purposes of s. 130.1(6)(b).
17 March 2003 T.I. 2001-009567 -
The mere ownership of an interest in a limited partnership will not jeopardize the qualification of a trust as a unit trust even if the nature of the business carried on by the partnership would not satisfy s. 108(2)(b)(ii).
2001 Ruling 2001-007094 -
Based on revised explanatory notes issued on June 16, 2000, the Agency ruled that the acquisition of limited partnership units in a limited partnership that only owned real property which it leased to a third party would not result in the corporation ceasing to satisfy s. 149(1)(o.2)(ii).