CRA discusses double application of s. 80(15) partner debt-forgiveness allocation rule on the winding-up of a partnership where one of its partners is a partnership
A bottom partnership (BP) is wound-up into its partners including an upper-tier partnership (TP) in the same year that BP realizes debt-forgiveness income under s. 80(13).
CRA considers that s. 80(15) would apply to TP, so that it would have a deemed debt forgiveness equal in amount to the s. 80(13) income of BP that was allocated to it for the year. If TP was unrelated to BP (meaning, broadly, that it had a minority interest), TP would be able under s. 80(9) to apply its deemed forgiven amount first against the ACB of its BP partnership interest that was disposed of on the winding-up and which was increased by the amount of the s. 80(13) income allocated to it – so that there would be a reduced, or no, amount of remaining s. 80(13) debt forgiveness income to be allocated by TP to its partners.
If TP was related to BP, it could not utilize s. 80(9), and a larger amount of s. 80(13) income would be allocated to TP’s partners.
Either way, s. 80(15) would also apply at the level of TP’s partners, so that they could apply their own tax attributes to absorb any s. 80(13) income which was allocated to them.
Neal Armstrong. Summary of 22 March 2017 External T.I. 2016-0666481E5 under s. 80(15).