The characterization of the partnerships gains and

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Unformatted text preview: ers should consult their own tax advisers with respect to their particular circumstances. Taxation of the Partnership The Partnership is not itself subject to income tax. However, the Partnership will be required to calculate its income or loss for income tax purposes for each of its fiscal years as if it was a separate person resident in Canada. The Partnership’s fiscal year end is December 31. - 29 - In computing its income or loss for tax purposes, the Partnership will be entitled to deduct its expenses in the taxation year in which they were incurred provided such expenses are reasonable and their deduction is permitted under the Tax Act. The costs associated with the organization of the Partnership are not fully deductible by the Partnership in computing its income; these costs qualify as eligible capital expenditures, three-quarters of which may be deducted by the Partnership in computing income at the rate of 7% per year on a declining balance basis. The expenses incurred by the Partnership in issuing its Units are deductible rateably by the Partnership over a five-year period (subject to pro-ration in the case of a fiscal year of the Partnership that is less than 365 days). The characterization of the Partnership’s gains and losses from dispositions of the Partnership’s investments as being capital gains or gains on income account will depend on the specific facts relating to each investment. Accordingly, no conclusion can be made as to the nature of such gains and losses generally when allocated to Limited Partners. Taxation of Limited Partner’s Share of Income or Loss Each Limited Partner will be required to include in income for each taxation year the Limited Partner’s share of the income or loss of the Partnership for the fiscal period of the Partnership that ends in, or coincides with, that taxation year, regardless of whether the Limited Partner has received distributions from the Partnership. Subject to the foregoing, a Limited Partner will not be required to include in income a distribution of cash by the Partnership. A Limited Partner may be entitled to deduct its share of losses realized by the Partnership in each fiscal period against the Limited Partner’s income from other sources, subject to, and, in accordance with, detailed tax rules including rules that limit the deduction by a Limited Partner of the Partnership’s losses to an amount not greater than the Limited Partner’s “at-risk amount”. A Limited Partner’s share of any loss of the Partnership that is not deductible by the Limited Partner as a result of the application of the “at-risk” rules is considered to be a “limited partnership loss” in respect of the Partnership for that year. The limited partnership loss may be deducted by the Limited Partner in a subsequent taxation year against income for that year to the extent that the Limited Partner’s at-risk amount at the end of the Partnership’s fiscal period ending in that year exceeds the Limited Partner’s share of any loss of the Partnership for that fiscal period. At any time, a Limited Partner’s adjusted cost base of its Units will be the amount of capital contributed to the Partnership, plus the Limited Partner’s share of the income of the Partnership (including the full amount of any capital gains realized by the Partnership) for fiscal periods ended before that time, less the amount of cash distributed to the Limited Partner before that time and less the Limited Partner’s share of losses of the Partnership (including the full amount of any capital losses realized by the Partnership) for fiscal periods ended before that time (other than losses not deductible by the Limited Partner by reason of the “at-risk” rules described above). If, at the end of a fiscal period of the Partnership, the adjusted cost base of the Limited Partner’s Units is a negative amount, the Limited Partner will be deemed to realize a capital gain for tax purposes equal to such negative amount, and the adjusted cost base will thereafter be increased by the amount of such deemed capital gain. Income or loss of the Partnership from a particular source and a particular place will be considered to be income of a Limited Partner from the same source and place to the extent of the Limited Partner’s share thereof. A Limited Partner’s share of any dividends received by the Partnership from taxable Canadian corporations will be subject to the usual gross-up and dividend tax credit rules in the Tax Act in the case of a Limited Partner that is an individual and may be subject to Part IV refundable tax in the case of Limited Partners that are private (and certain other) corporations. - 30 - Disposition of Units On the disposition of a Unit by a Limited Partner, including on wind-up of the Partnership, the Limited Partner will realize a capital gain (or capital loss) in the amount by which the Limited Partner’s proceeds of disposition exceed (or are less than) the Limited Partner’s adjusted cost base of the Unit and the c...
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This document was uploaded on 02/19/2014.

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