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: partnership reorg - should be ruling request
Position: should be ruling request
Reasons: should be ruling request
2001-007259
XXXXXXXXXX Denise Dalphy, LL.B.
(613) 957-9231
March 21, 2001
Dear XXXXXXXXXX:
Re: Partition
We are writing in reply to your letter dated February 26, 2001 wherein you requested our views on various alternative proposed transactions.
You have described the following situation:
1. On XXXXXXXXXX, two taxpayers (the "Partners") formed a partnership (the "Partnership") to carry on the business of an XXXXXXXXXX.
2. On XXXXXXXXXX, the Partners incorporated a company (the "Corporation"). We assume that the Partners own all of the common shares of the Corporation.
3. On XXXXXXXXXX, the Partnership transferred all of its assets to the Corporation for consideration of preferred shares (the " preferred shares") of the Corporation. We assume that a valid 85(2) election was made.
4. The Partners had understood that the shares would be transferred to the Partners and that the Partnership would be wound up. This did not occur.
5. Late in the year XXXXXXXXXX, the law firm, XXXXXXXXXX reviewed the minute book of the Corporation and determined that the transactions described in step #4 above were not effected.
6. The Partnership would now like to transfer the preferred shares to holding companies (of each Partner, we assume) and each Partner would like to transfer his shares in the Corporation to his holding company.
Since your letter described an actual fact situation, as noted in Information Circular 70-6R4 (available at your local tax services office or on the internet at www.ccra-adrc.gc.ca/formspubs/menu-e.html), this directorate can only provide an opinion concerning the tax consequences associated with specific proposed transactions in the form of an advance income tax ruling.
In particular, should you decide to request an advance income tax ruling, please provide us with the following information and documents:
1. your client's address,
2. your client's tax account number,
3. the identification of the tax services office and taxation center where your client's return is filed,
4. written evidence that you are authorized to act for your client,
5. a deposit of $535.00,
6. an undertaking by you to pay such further fees as may be payable in respect of this ruling application,
7. a statement as to whether any of the issues involved in the ruling request, to the best of the taxpayer's and the taxpayer representative's knowledge:
(i) is in an earlier return of the taxpayer or a related person,
(ii) is being considered by a tax services office or taxation center in connection with a previously filed tax return of the taxpayer or a related person,
(iii) is under objection by the taxpayer or a related person,
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) is the subject of a ruling previously issued by the Directorate;
8. a statement of the purpose of each proposed transaction,
9. your interpretation of the application of the provisions of the law that are relevant to each ruling request,
10. a description of the income tax concern that is the cause of the request for each ruling,
11. a complete description of significant transactions that were completed prior to the time of submission of the ruling request or that may be undertaken after the completion of the proposed transactions,
12. a summary of the relevant facts contained in the supporting documentation,
13. with respect to the subsection 245(2) ruling, submissions to establish that the transactions would not result in a misuse of the provisions of the Act or an abuse having regard to the provisions of the Act as a whole,
14. an analysis of authorities which both support the ruling requested and those that do not, with a submission as to why the authorities in support of the ruling requested should prevail,
15. the consent of the taxpayer for release of the ruling, in severed form, to the public (see Appendix A of IC 70-6R4),
16. a statement identifying the information to be deleted from the text of the ruling before it is released, signed and dated by the taxpayer or the taxpayer's authorized representative (see paragraph 16(m) of IC 70-6R4),
Further, please note that, per subparagraph 15(d) of IC 70-6R4, we may refuse to rule when the request for a ruling contains alternative courses of action on the part of the taxpayer.
Notwithstanding the foregoing, we provide the following general comments.
With respect to the application of subsection 85(2) of the Act, it is not clear whether or not this subsection applies if the partnership transfers its assets to more than one corporation. The CCRA is currently reviewing this issue.
With respect to subsection 248(21) of the Act, it is our opinion that the subsection does not apply to effect a partition, but instead may have application once a legal partition has been effected.
With respect to opinion #5-971957 dated December 22, 1997, wherein we opined, without prejudice, that the conversion of a joint tenancy to a tenancy in common does not trigger a disposition under the Act as a result of the definition of "disposition" in section 54 of the Act, the situation is not directly analogous to the situation that you have described. In both a joint tenancy and a tenancy in common, the tenants have an undivided interest in the whole property, whereas in the situation that you describe, each Partner wishes to obtain a 100% interest in half of the preferred shares of the Corporation. However, we have in the past ruled that the exchange of an undivided interest in all of the shares of a particular class for a 100% interest in some of the shares may not in certain situations be a disposition within the meaning of section 54.
The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 22 of Information Circular 70-6R4, 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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