CRA considers clearance certificate on liquidation of partnership

In 2012-0432861E5, the CRA was asked whether a general partner would be required to obtain a clearance certificate under s. 159 on the liquidation of a limited partnership. Further, if such a certificate were required, would it need to certify that each limited partner has paid all income tax owing on partnership income previously allocated to it. In broad terms, s. 159(2) can impose a derivative tax liability on certain persons who distribute property in the course of administering, winding up, or otherwise acting in a representative or fiduciary capacity in respect of a taxpayer’s property – unless a clearance certificate is obtained from the CRA certifying that the taxpayer in question has no tax debts. In response to the questions asked, the CRA said that “the taxpayer” could include the partnership being dissolved, and that a clearance certificate would be required in respect of the partnership. Although a partnership does not itself pay income tax (s. 96), the s. 159(2) certificate would address any applicable source-deduction requirements previously imposed on partnership. The CRA further confirmed that a clearance certificate would not be required to certify that each limited partner had paid all income tax owing on previously allocated partnership income.