Inventory potentially can be bumped on a partnership winding-up

Unlike s. 98(3), which requires that property to be bumped on the conversion of a partnership into a co-ownership must be non-depreciable capital property of the partnership, s. 98(5) requires that the bumped property be non-depreciable capital property of the "proprietor" (i.e., the former partner distributee).

This suggests that partnership inventory potentially can be bumped on a s. 98(5) partnership winding-up, e.g., real estate inventory that is received by the proprietor for development as a rental property.  However, a fly in the ointment is that s. 98(5) requires that the proprietor continue with the partnership business and the use the distributed property therein.  In addition to the factual question of whether there is a new business, this potentially engages a minority dictum in Qualico suggesting that unsold inventory of the partnership was not "used" in its business.

If in fact this "use" issue is a problem, no s. 98(5) rollover would be available for a partnership holding any inventory.

Neal Armstrong.  Summary of Perry Truster, "Windup-Bump Comparison: Subsections 98(3) and (5)," Tax for the Owner-Manager (Canadian Tax Foundation), Vol. 15, No. 1, January 2015, p. 8 under s. 98(5).