CRA confirms the inability of a top-tier partner to elect to reverse a negative ACB gain

Where a corporation, individual or testamentary trust realizes a capital gain on a limited partnership interest (or passive "specified member" interest) under the negative adjusted cost base rule in s. 40(3.1), the rule in s. 40(3.12) permits that partner to realize a capital loss at the end of the next fiscal period of the partnership to the extent that the adjusted cost base of the partnership interest has become a positive amount.

CRA has confirmed that this loss recognition election is not available where the limited partner (or specifed member) is itself a partnership.  This represents another loss-utilization anomaly of two-tier partnership structures (see also the post below on the limited partnership loss rules).

Neal Armstrong.  Summary of 3 July 2012 T.I 2012-0449701E5 under s. 40(3.12).