However, even if a partnership agreement and other documentation indicate an intention to form a partnership, the fundamental criteria of a valid partnership must still be met in order to conclude that one exists.ġ.10 In determining whether a business was carried on in common, the Supreme Court of Canada held in Continental Bank and Backman that the authority of any partner to bind the partnership is a relevant factor. If the foreign entity or arrangement more fundamentally resembles a partnership arrangement under Canadian law than a corporation, trust or co-ownership, it will be treated as a partnership for Canadian tax purposes.ġ.9 In Backman, the Supreme Court of Canada held that the common purpose required for establishing a partnership will usually exist where the parties have entered into a valid partnership agreement setting out their respective rights and obligations as partners. Ii. Compare the characteristics of the foreign business entity or arrangement to the characteristics of business entities or arrangements under Canadian law in order to see which Canadian entity or arrangement it most fundamentally resembles. I. Determine the characteristics of the foreign business entity or arrangement by reference to any relevant foreign law and the terms of any relevant agreements relating to the entity or arrangement and Canada, 1 SCR 391, 20, the Supreme Court of Canada confirmed that for purposes of the Act the existence of a partnership must be determined by reference to the partnership law of the relevant province or territory, and this is the case even when dealing with a partnership established in a jurisdiction outside Canada.ġ.3 In the case of a foreign entity or arrangement, the CRA takes the following two-step approach to determine whether such entity or arrangement should be treated as a partnership for Canadian tax purposes: Canada, 1 SCR 367, 20, and Spire Freezers Ltd. Canada, 2 SCR 298,, and later in Backman v.
#Joint venture vs partnership code#
Similarly, the Civil Code of Quebec defines a contract of partnership.ġ.2 In Continental Bank Leasing Corp. Determining the existence of a partnershipġ.1 Each of the common law provinces or territories has a partnership statute that defines the term partnership.The reader should, therefore, consider such comments in light of the relevant provisions of the law in force for the particular tax year being considered. While the comments in a particular paragraph in a folio may relate to provisions of the law in force at the time they were made, such comments are not a substitute for the law. Due to their technical nature, folios are used primarily by tax specialists and other individuals who have an interest in tax matters. The Canada Revenue Agency (CRA) issues income tax folios to provide technical interpretations and positions regarding certain provisions contained in income tax law. This Chapter also discusses some of the factors that indicate the existence of a joint venture, which is an arrangement that has attributes similar to a partnership. Nonetheless, the discussion in this Chapter is relevant to limited partnerships insofar as a limited partnership cannot be established unless a partnership exists. The purpose of this Chapter is to outline the factors that are relevant to determining whether a partnership exists.Īlthough the Act sets out a number of rules that apply to limited partnerships, which are a special type of partnership provided for under provincial law, this Chapter does not discuss the factors related to determining whether a limited partnership exists. Section 96 provides that the income of a member of a partnership is computed as if the partnership were a separate person resident in Canada. The Act does not define a partnership but it recognizes the existence of partnerships and sets out the income tax consequences of transactions involving partnerships and their members.
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