IT-378R "Winding-up of a Partnership" 1 January 1995

2. The consideration received by the partnership for one or more properties disposed of under subsection 85(2) must include at least one share of the capital stock of the corporation. In practice the number issued is determined by the need for shares in the course of winding up under subsection 85(3). For administrative ease the shares are sometimes issued in the names of the partners instead of the name of the partnership. The Department's view is that this procedure does not invalidate the application of subsection 85(2), nor a subsequent application of subsection 85(3), if the intent is that the shares beneficially belong to the partnership and not to the partners themselves.

3. Subsections 85(2) and (3) taken together provide a means whereby partnership property may be transferred to a corporation and the related partnership interests converted into share holdings without realization of gains or losses at either level. (Those results may be different where property other than property described in subsection 85(2) is transferred to the corporation and/or property having a fair market value in excess of the adjusted cost base of a partner's partnership interest is transferred to him.) The Department's view is that the validity of an election under subsection 85(2) and of a winding-up under subsection 85(3) is contingent upon the partnership property being transferred to and share capital taken back from only one corporation. ...

7. For the purpose of paragraph 85(3)(b) the Department will consider the affairs of a partnership to have been wound up when all the property of the partnership, including money, has been distributed to the members in satisfaction of their interests in the partnership. The "rollover" will not be denied for the reason only that some of the requirements to complete the dissolution of the partnership, other than the distribution of all property, have not been fulfilled within 60 days after the disposition of property to the corporation.

8. For the purposes of paragraph 85(3)(c) the partnership must not own any property immediately before the winding up other than property received from the corporation as consideration for the disposition or money. Consequently any other partnership property must have been disposed of prior to distribution on winding up of the property described in paragraph 85(3)(c).