CRA rules that on a s. 98(5) wind-up, the ACB of the transferor partner’s interest is bumped by YTD income

A CRA ruling addressed a timing issue respecting the basis adjustments on a s. 98(5) winding-up that occurs where the sole limited partner (LPco) transfers it interest in the LP under s. 85(1) to GP, thereby triggering the dissolution of the LP. It often will be important that the adjusted cost base of the LPco interest in LP on the transfer of that interest to GP be increased by LPco’s share of the LP’s income earned to date.

CRA ruled that, by virtue of s. 99(1) deeming the LP fiscal period to have ended two instants of time before the termination of the LP, the ACB of the transferred partnership interest reflected such share of LP’s income. There was a representation that the partnership ceased to exist, and all its property became property of GPco, “upon” the partnership interest transfer. This characterization appears to be correct; and a view that the LP continued to exist until a certificate of dissolution was filed with the local registry would be incorrect.

Neal Armstrong. Summary of 2016 Ruling 2015-0617101R3 under s. 53(1)(e)(i).