29 May 2002 External T.I. 2001-0071495 - PARTNERSHIP ONE CORPORATION ROLLOVER

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. Can 85(2) apply where a partnership transfers assets to more than one corporation
2. Can property be apportioned per 85(1)(e)(i) where a partnership rolls property to 2 corporations

3. Will 85(3) apply?

PositionS:

1. Yes
2. Generally no
3. No

Reasons:

1. Wording of 85(2)
2. Wording of 85(1)(e)(i), however it may be possible to demonstrate reasons for apportioning
3. 85(3)(c) will not apply

2001-007149

XXXXXXXXXX Denise Dalphy, LL.B.

(613) 941-1722
May 29, 2002

Dear XXXXXXXXXX:

Re: Transfers of Properties from Partnership to Corporations

We are writing in reply to your letter dated February 14, 2001 wherein you requested our interpretation of the words in subparagraph 85(1)(e)(i) where a partnership transfers depreciable properties pursuant to subsection 85(2) to two or more taxable Canadian corporations. We apologize for the necessary delay in responding to your letter, however, as we advised you earlier, it was necessary to conduct extensive consultations on the scope of subsection 85(2) of the Income Tax Act (the "Act").

Written confirmation of the consequences inherent in particular transactions are given by this directorate only where the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4 (the "Circular"). Where the particular transactions are partially completed or completed, the enquiry should be addressed to the relevant Tax Services Office. Notwithstanding the foregoing, we offer the following general comments.

It is our opinion that the application of subsection 85(2) of the Act is not limited to a situation where a partnership transfers eligible property to one corporation. In our view, this subsection of the Act may apply where a partnership transfers depreciable property to more than one corporation. However, where a tax benefit occurs, the general anti-avoidance rule in subsection 245(2) of the Act may apply.

You have also asked whether in the context of transactions to which subsection 85(2) of the Act applies, we will "read in" the words "the portion of" at the beginning of subparagraph 85(1)(e)(i) of the Act and the words "that the capital cost to the taxpayer of the property of that class is of the capital cost to the taxpayer of all property of that class" immediately before the words "immediately before the disposition" at the end of this subparagraph. In our opinion, while a clear reading of the Act does not permit such an interpretation, it may be possible, in the context of a request for an advance income tax ruling, to clearly demonstrate extraordinary circumstances that would justify such an interpretation.

Finally, we would add that where subsection 85(2) of the Act is applied to transfers to two or more corporations, it is our opinion that the criterion in paragraph 85(3)(c) of the Act will not be satisfied, and, as such, the rules in paragraphs 85(3)(d) to (h) of the Act will not apply.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of the Circular, the above comments do not constitute an income tax ruling and accordingly are not binding on the Canada Customs and Revenue Agency. Our practice is to make this specific disclaimer in all instances in which we provide an opinion.

Yours truly,

Steve Tevlin
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

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