Canadian Tax Adviser
November 29, 2011
File One Clearance Certificate Request for Dissolving Partnership
Evy Moskowitz
Toronto, Moskowitz & Meredith LLP
In a recent technical interpretation, the CRA confirms that, before making a final distribution to limited partners, only one section 116 notification of disposition and only one clearance certificate under subsection 159(2) needs to be filed on behalf of a partnership, provided that the required information is filed with the notification and the clearance certificate. As a result, each limited partner does not have to file a notification or a clearance certificate.
Legislative background
Where a clearance certificate under subsection 159(2) has not been obtained
and the legal representative of a taxpayer distributes property that was
under the person's control, the legal representative is personally liable
for unpaid taxes, interest and penalties to the extent of the value of the
property so distributed.
Facts
A limited partnership with property in Canada is being dissolved. The
partnership's property consists largely of real property that is primarily
rental property that has been or will be liquidated. There is a large number
of limited partners, who reside in one or more foreign countries, who will
receive a distribution representing their proportionate share of the
partnerships liquidated assets after outstanding liabilities are paid. The
dissolution is being managed by an administrator who wishes to avoid a tax
liability on the distribution of the liquidated assets by obtaining the required clearance certificates.
Issue
At issue is whether, before making the final distribution to the limited
partners, a certificate under subsection 159(2) needs to requested for only
the partnership itself or for the partnership and each partner.
CRA comments on section 116 notification
The CRA
noted that, for partnership dispositions, it is the CRA's
policy to accept one notification of disposition filed on behalf of all
partners, as stated in IC 72-17R5, "Procedures Concerning The Disposition Of
Taxable Canadian Property By Non-Residents Of Canada - Section 116".
Along with the notice, the CRA requires a complete listing of the non-resident partners disposing of the property including their:
- Canadian and foreign addresses
- Identification numbers
- Percentage ownership
- Portion of the payment allocation.
The CRA advised that where no account information is available for a non-resident partner, it will assign an identification number. The CRA will then issue a certificate of compliance to each non-resident partner. Each partner is required to file a tax return and, as such, each partner's final tax liability will be determined after the tax returns are filed and assessed.
CRA comments on clearance certificate
For purposes of the subsection 159(2) clearance certificate, the CRA
notes that one clearance certificate can be requested on behalf of the
limited partnership, provided that the required information is provided.
Included with the information pertaining to non-resident partners would be
the same information relating to any resident partners. On review, the CRA
may issue one certificate in the name of the partnership. One remittance can
be submitted on behalf of the partnership, and this
amount will be allocated to each partner's account so the amount can be
applied to their individual return when they file. The CRA's procedures for
obtaining a clearance certificate are detailed in Information Circular
82-6R2, "Clearance Certificate".
For more information, contact your KPMG adviser.
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