ROAD MAP PARTNERSHIPS What is a Partnership at Common Law ? Presented at the CICA Symposium What is a partnership ? October 4 - 6, 2004: Ottawa, ON GST & Partnerships ROBERT G. KREKLEWETZ RST & Partnerships MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP Partnerships at Common Law Partnerships at Common Law Partnerships at Common Law Why do I care ? Provincial Legislation. Common Law Precepts. The Partnership Agreement Tackling sophisticated transactions. Understanding why tax applies in the manner it does Carrying on Business Written Properly challenge With a View to Profit Oral Admin Policy or Tax Audits where appropriate In Common Implied MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP 1
Partnerships at Common Law Partnerships at Common Law Partnerships at Common Law The “Firm” as a Collection on Partners The Partner as Agent What legal implications follow ? Section 6 of Partnerships Act No Legal Personality Legal Implications Legal Implications Tax Implications Tax Implications MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP Partnerships at Common Law GST & Partnerships OVERVIEW Partnership Property Statutory Code or Common Law ? GST & Partnerships Sections 21 & 24 Legal Implications Tax Implications MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP 2
GST & Partnerships GST & Partnerships GST & Partnerships DEEMING RULE – 272.1(1) The “Partnership Interest” I did something “as a member of a Partnership” The Partnership as a “Person” as a Financial Instrument “The Partnership did it” No Definition Subsection 123(1) Endless implications Ownership of Property ? Intended Effect � Registration Unintended Effects ? MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP GST & Partnerships GST & Partnerships GST & Partnerships REIMBURSEMENTS – 272.1(2) REIMBURSEMENTS – 272.1(2) SUPPLIES TO PARTNERSHIP – 272.1(3) I bought something for the Partnership, I bought something for the Partnership, Not in the Ordinary Course used my own money, used my own money, Subsection 175(1) and got reimbursed. but didn’t get reimbursed. Deeming Rules Valuing Supply Paragraphs 272.1(2)(a) (b) & (c) Supply to Partnership Commercial Use: Consideration Paid No Supply to Partnership Exempt Use: FMV Partnership Takes ITC for Reimbursed Portion Partnership Gets NO ITC Partner Takes ITC or Rebate for Partner Takes ITC or Rebate UnreimbursedPortion MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP 3
GST & Partnerships GST & Partnerships GST & Partnerships SUPPLIES TO PARTNERS – 272.1(4) OTHER SPECIAL RULES Disposition of Property of the Partnership Issues to current prospective or departing partners 272.1(5) – Joint & Several Liability 272.1(6) – Deemed Existence Until Cancellation & Disposition 272.1(7) – Continuation of Partnerships Deemed FMV Supply Recent Changes Commentary MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP GST & Partnerships GST & Partnerships GST & Partnerships RECENT CHANGE RECENT CHANGE EXAMPLE P-XXX – DRAFT POLICY ON 272.1(7) P-244 – FINAL POLICY ON 272.1(1) Continuation of Partnership Rule Meaning of “as a Member of a Partnership” Partnership RULE: Terms of the Partnership Agreement Significant Changes from Draft Policy If requirements met, then Dco Nature of Action Taken by Partner � Dco is Manufacturing Company NEW “continuation of and same person as” OLD (Partner) � Provides Accounting Services to Partnership Partner’s Ordinary Course of Conduct � Dco’s Employee’s Perform the Services Question: Treatment of Property Being Transferred � Dco is Reimbursed MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP 4
GST & Partnerships GST & Partnerships ISSUE PARTNERSHIP MWK MK PROPERTY MIS-IDENTIFICATION RST & Partnerships & OVER-DOCUMENTATION M W K M K CRA: Property Transfers from (1) MWK to M-W-K (2) M-K to MK MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP RST & Partnerships RST & Partnerships RST & Partnerships OVERVIEW RECENT CHANGE ONTARIO PARTNERSHIP REGULATIONS Rule on Creation of Partnership Partnership as a “Non-Person” “Eligible Property” No RST if “Consideration Received” General Absence of for TPP = “Partnership Interest” Requires “Tax Paid Property” Statutory Code Governed by What is the “Partnership Interest” (Not Acquired for Resale) Seven Mile DamAnalysis Contemplates Multiple Usage of Exemptions (Not Acquired Exempt) Implications How should it be valued ? Remember: Can Take it Out Tax-Free Too MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP 5
PARTNERSHIPS RST & Partnerships ROBERT G. KREKLEWETZ Rule for Transfers After Creation Treat certain amount as exempt, QUESTIONS THANK YOU based on “% of Profits” of Partnership Applies on TPP Going IN and OUT (But not if taking out someone’s else’s TPP) Inherent Double Tax Still the Norm Why % of Profits ? MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP ONTARIO PARTNERSHIPS ACT ONTARIO PARTNERSHIPS ACT EXCISE TAX ACT POWER OF PARTNER TO BIND FIRM POWER OF PARTNER TO BIND FIRM PARTNERSHIP PROPERTY RULES AS TO INTERESTS AND DUTIES OF PARTNERS 6. Every partner is an agent of the firm and of the other partners for the 6. Every partner is an agent of the firm and of the other partners for the 21. (1) All property and rights and interests in property originally brought 24. The interests of partners in the partnership property and their rights 123.(1) Definitions — In section 121, this Part and Schedules V to X, purpose of the business of the partnership, and the acts of every partner purpose of the business of the partnership, and the acts of every partner and duties in relation to the partnership shall be determined, subject to any into the partnership stock or acquired, whether by purchase or otherwise, who does any act for carrying on in the usual way business of the kind who does any act for carrying on in the usual way business of the kind agreement express or implied between the partners, by the following rules: on account of the firm, or for the purposes and in the course of the "person" means an individual, a partnership, a corporation, the estate of a carried on by the firm of which he or she is a member, bind the firmand carried on by the firm of which he or she is a member, bind the firm and partnership business, are called in this Act "partnership property", and deceased individual, a trust, or a body that is a society, union, club, 1. All the partners are entitled to share equallyin the capital and profits of the business, the other partners unless the partner so acting has in fact no authority to the other partners unless the partner so acting has in fact no authority to must be held and applied by the partners exclusively for the purposes of the association, commission or other organization of any kind; and must contribute equally towards the losses, whether of capital or otherwise, act for the firm in the particular matter and the person with whom the act for the firm in the particular matter and the person with whom the partnership and in accordance with the partnership agreement. R.S.O. sustained by the firm, but a partner shall not be liable to contribute toward losses partner is dealing either knows that the partner has no authority, or does partner is dealing either knows that the partner has no authority, or does 1990, c. P.5, s. 21 (1). arising from a liability for which the partner is not liable under subsection 10 (2). not know or believe him or her to be a partner. R.S.O. 1990, c. P.5, s. 6. not know or believe him or her to be a partner. R.S.O. 1990, c. P.5, s. 6. Return Return Return MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP 6
RST & Partnerships EXCISE TAX ACT SEVEN MILE DAM – BC C.A. SALE OF EQUIPMENT PARTNERSHIP (Assume $100,000) PARTNERSHIP 1 2 272.1(1) Partnerships — For the purposes of this Part, anything done by a person as a member of a partnership is deemed to have been done by the partnership in the course of the partnership's activities and not to have (Like Selling $20,000) been done by the person. 70 % 30 % 40 % 10 % (Like Selling $30,000 ) A A B B Return Return MILLAR KREKLEWETZ LLP MILLAR KREKLEWETZ LLP 7
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