CRA finds that s. 84(3) does not apply to the cancellation of preferred shares held by a partnership in the corporation into which it is wound-up

A family farming partnership was dissolved as a result of all the members transferring their partnership interests to a jointly-owned corporation (Opco). One of the partnership’s assets was preferred shares of Opco. These preferred shares were cancelled for no consideration in connection with the winding-up of the partnership and the transfer of its assets to Opco.

CRA confirmed that because the preferred shares were cancelled for no consideration, no s. 84(3) deemed dividend arose.

Respecting an assertion by the correspondent that s. 98(5) applied to the partnership winding-up, CRA indicated that this raised the issue of when the partners transferred their interests in the partnership to Opco, and stated:

[W]here such transfers occur simultaneously … subsection 98(5) would not be applicable, given that Opco would not be a partner of Partnership immediately before Partnership ceased to exist.

Neal Armstrong. Summaries of 27 June 2018 External T.I. 2018-0745681E5 F under s. 84(3), s. 98(5) and s. 28(1)(f).