Principal Issues: 1. An individual dies and he was a member of limited partnerships at the date of death. Will he have to report an amount of income or loss from the partnership?
2. If the individual borrowed funds to acquire the partnership interest, will the interest incurred in the year of death be deductible?
3. If the individual acquired units of a limited partnership which invested in flow-through shares and which has a December 31 year-end, will he be entitled to various resource deductions in the year of death?
Position: 1. Assuming the partnership continues to exist after the death of a partner, the terms of the partnership agreement will provide whether or not a deceased taxpayer will be allocated a share of the income or loss of the partnership from the end of the last fiscal period to the date of death. The deceased's share will be determined by reference to the income of the partnership calculated at the end of the fiscal period of the partnership according to the terms of the partnership agreement. If a share of the income is allocated to the deceased, it represents a right or thing. If a share of the loss is allocated to the deceased, it represents loss from business or property where the ACB has been reduced by the amount of the loss.
2. Except as provided in paragraph 4 of IT-212R3, an interest expense would not be deducted from the value of the right or thing in the year of death. An interest expense that is not deducted in computing the value of right or thing may be deductible in computing the income from business or property of the deceased if the conditions provided for in paragraph 20(1)(c) are met. If a loss results from the deduction of the interest, it could be claimed in the final return for the year of death.
3. Canadian exploration expenses or Canadian development expenses incurred by a partnership in a particular fiscal period may be allocated to persons who were partners of the partnership at the end of that fiscal period. There would be no allocation to the deceased partner in the year of death because he was not a partner at the end of the fiscal period that is December 31.
Reasons: 1. IT-278R2 and previous opinions.
2. IT-212R3 and wording of the Act.
3. Wording of the definitions of Canadian exploration expense and of Canadian development expense (paragraph 66.1(6)(h) and 66.2(5)(f))