[2017] 4 F.C.R. D-6
Income Tax
Partnerships
Losses — Appeal from Tax Court of Canada (T.C.C.) order determining that, in two-tiered partnership structure, business losses incurred by lower-tier partnership retaining their character as business losses of top-tier partnership, such losses thus available to be allocated to the partners of the top-tier partnership as business losses — Respondents limited partners in Monarch Entertainment 1994 Master Limited Partnership (MLP) — MLP limited partner in 31 different limited partnerships — Business losses incurred by limited partnerships allocated mostly to MLP, then mostly by MLP to its limited partners, including respondents — At-risk amount of respondents increased after allocation of capital gain by MLP to its limited partners — Each respondent then claiming portion of accumulated limited partnership losses in respect of MLP — Whether T.C.C. correct in determining that business losses could be flowed through from one limited partnership to another limited partnership, then to partners of that second limited partnership retaining their character as business losses throughout — Partnerships not persons, not taxpayers for purposes of Income Tax Act, R.S.C., 1985 (5th Supp.), c.1 (ITA) — ITA, s. 96 provision allocating income of partnership to its partners — Providing that source of income earned or loss incurred by partnership maintained by allocating to each partner their share of income or loss from each source of income or loss — ITA, s. 96(2.1) restricting partner’s ability to use their share of any losses realized by limited partnership — Appellant arguing, inter alia, that s. 96(2.1) applying to MLP as member of lower-tier limited partnerships — As such, losses effectively trapped in MLP as provision allowing partner to claim such losses in the future, ITA, s. 111(1)(e), not applying to MLP as MLP not taxpayer for purposes of that section — Allocation of limited partnership losses by a partnership to its partners not contemplated in s. 96 — Appellant’s interpretation of s. 96 problematic — Words “as the case may be” in ITA, s. 96(1) recognizing that not all matters listed necessarily applying to all members of a partnership — Read in context, ITA, s. 96(2.1)(c),(d) only applying to taxpayers required to compute income, non-capital loss under ITA, ss. 3, 111 — Ss. 3, 111 not applying to partnerships — Parliament not intending to apply restriction on limited partnership losses to MLP-like partnerships as members of another limited partnership, but deny MLP-like partnerships benefit of deduction in future if limited partnership should earn income resulting in increased at-risk amount — Appellant’s position requiring MLP to compute income resulting in blending of income, losses from various sources into single amount, i.e. income or loss of top-tier partnership for a particular year — Since ss. 96(1),(2.1) both referring to computation of income, Parliament not intending that computation of income would only apply to partnership that is member of another limited partnership if other limited partnership’s net loss exceeding at-risk amount of member in respect of limited partnership — Rather, Parliament intending for sources of income (or loss) to be kept separate, retain their identity as income (or loss) from particular source as allocated from one partnership to another partnership, then to partners of that second partnership — Appeal dismissed.
Canada v. Green (A-38-16, 2017 FCA 107, Webb J.A., judgment dated May 19, 2017, 22 pp.)