7 March 2000 External T.I. 1999-0011335 - Cash Basis

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: 1. on transfer of partnership interest to corporation is there any minimum time that corporation must be partner before 98(5) apply?

2. If farmer transfers assets to corp including A\R does he report income no matter the consideration?

3.On wind-up of partnership pursuant to 98(3) or (5) will A\R be included in income of partnership.

Position: 1. 98(5) will apply provided corporate transferee continues to carry on the business of the partnership and uses the partnership property.

2.Income no matter nature of the consideration.

3.Income to partners when realized.

Reasons: 1.Previous rulings.

2. 28(5)

3. 28(5)

XXXXXXXXXX 							1999-001133
S. Tevlin
Attention:  XXXXXXXXXX 

March 7, 2000

Dear Sirs:

Re: Farming Partnership

We are writing in response to your letter dated May 13, 1999 wherein you requested our opinion on certain issues pertaining to the incorporation of a farm partnership.

In particular you asked:

(1) Where partners in a partnership transfer their partnership interests to a corporation pursuant to subsection 85(1) of the Income Tax Act (the "Act"), is there any minimum time period that the corporation must be a member of the partnership carrying on the business of the partnership in order for subsection 98(5) of the Act to have application.

(2) Must a farmer, using the cash method of reporting income, who transfers all his assets to a corporation, including accounts receivable, include the amount received for those accounts receivable in income regardless of the nature of the consideration received on the transfer.

(3) When a farming partnership, that used the cash basis for reporting income, is wound-up pursuant to subsections 98(3) or 98(5) of the Act, would the amount of its trade receivables outstanding at the time of the wind-up be included in the income of the partnership.

In this regard we offer the following general comments:

(1) It is our opinion that where all the partners in a partnership have transferred their partnership interests to a corporation, subsection 98(5) will apply to the dissolution of the partnership provided the corporate transferee continues to carry on the business of the partnership, using the partnership property formerly belonging to the partnership.

(2) Where a taxpayer using the cash method of reporting income transfers all his accounts receivable to a corporation for any consideration that taxpayer would pursuant to subsection 28(5) of the Act include in income the fair market value of amounts received in satisfaction of the debts at the time he ceases to carry on the business of farming. If, however, the taxpayer retained the accounts receivable, the amounts realized from their collection would be included in the taxpayer's income in the year in which the amounts are received.

(3) Where a cash basis farming partnership has been wound-up pursuant to either of subsections 98(3) or (5) of the Act it is our opinion that the partnership will not include the trade receivables in its income for its final fiscal period. The partnership will include only amounts that are received or deemed to have been received in the course of carrying on business. Where the trade receivables are distributed to the partners, the former partners would include in income in the year of receipt any amounts that are received by them on account of such receivables.

If, however, the trade receivables have been transferred or disposed of, the provisions of subsection 28(5) of the Act will apply as described in 2 above.

We trust our comments will be of assistance to you.

The foregoing comments are given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996 and are not binding on the Canada Customs and Revenue Agency.

Yours truly,

Paul Lynch
for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch