2002 Ruling 2001-0084753 - PARTNERSHIP; ACB; INCOME

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 CCRA.

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

Principal Issues: whether administrative acb bump re 53(1)(e)(i) where partnership will terminate

Position: yes

Reasons: would otherwise be double tax; for business reasons the partnership can't terminate immediately after year end

XXXXXXXXXX 2001-008475

XXXXXXXXXX, 2002

Re: XXXXXXXXXX ("LP A")
XXXXXXXXXX ("LP B")
XXXXXXXXXX ("LP C")
XXXXXXXXXX ("LP D")
Advance Income Tax Ruling

We are writing in response to your letter of XXXXXXXXXX, wherein you requested advance income tax rulings on behalf of the limited partners of the above-referenced partnerships, as well as our subsequent correspondence.

To the best of your knowledge, and that of the taxpayers involved, none of the issues contained herein is:

(i) dealt with in an earlier return of the taxpayers or a related person;

(ii) being considered by a tax services office or taxation centre in connection with a previously filed tax return of one or any of the taxpayers or a related person;

(iii) under objection by one or any of the taxpayers or a related person;

(iv) subject to a ruling previously issued by the Income Tax Rulings Directorate; or

(v) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired.

In this letter, the following terms have the meanings specified:

(a) "Act" means the Income Tax Act, R.S.C 1985 (5th Supp.) c.1, as amended to the date hereof, and, unless otherwise stated, every reference herein to a Part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;

(b) "ACB" means "adjusted cost base", which has the meaning assigned by section 54 of the Act;

(c) "Assets" means XXXXXXXXXX and other property owned by LP A, LP B, LP C and LP D, respectively;

(d) "Company A" means XXXXXXXXXX. The business number of Company A is XXXXXXXXXX;

(e) "Company B" means XXXXXXXXXX. The business number of Company B is XXXXXXXXXX;

(f) "Company C" means XXXXXXXXXX. The business number of Company C is XXXXXXXXXX;

(g) "Company D" means XXXXXXXXXX. The business number of Company D is XXXXXXXXXX;

(h) XXXXXXXXXX;

(i) "Limited Partner" means a person who has a limited partnership interest in LP A, LP B, LP C, or LP D;

(j) "LP" means LP A, LP B, LP C, and LP D, either collectively or singularly;

(k) "LP A" means XXXXXXXXXX, the tax shelter number of which is XXXXXXXXXX;

(l) "LP B" means XXXXXXXXXX, the tax shelter number of which is XXXXXXXXXX;

(m) "LP C" means XXXXXXXXXX the tax shelter number of which is XXXXXXXXXX;

(n) "LP D" means XXXXXXXXXX, the tax shelter number of which is XXXXXXXXXX;

(o) "Mutual Fund Corporation" has the meaning assigned by subsection 131(8) of the Act;

(p) "Partnership Act" means the XXXXXXXXXX;

(q) "XXXXXXXXXX" means XXXXXXXXXX, a mutual fund corporation and taxable Canadian corporation amalgamated under the Canada Business Corporation Act on XXXXXXXXXX;

(r) "Taxable Canadian Corporation" has the meaning assigned by subsection 89(1) of the Act;

(s) "Unit" or "Units" means an interest of a Limited Partner in LPA, LP B, LP C or LP D.

FACTS

1. LP A and LP B, and LP C and LP D were formed pursuant to the Partnership Act on XXXXXXXXXX, respectively. The fiscal year ends of LP A, LP B, LP C, and LP D are XXXXXXXXXX.

2. The general partners of LP A, LP B, LP C, and LP D are Company A, Company B, Company C, and Company D, respectively. The fiscal year ends of Company A, Company B, Company C, and Company D are XXXXXXXXXX.

3. The LPs were created primarily to facilitate the investing in XXXXXXXXXX of issuers engaged in XXXXXXXXXX. Pursuant to the Offering Memorandum of each LP, each Limited Partner of an LP purchased a minimum of XXXXXXXXXX units in one of the LPs at $XXXXXXXXXX per Unit. Each LP utilized the funds to invest primarily in XXXXXXXXXX and to pay its expenses and costs.

4. Each of the Prospectuses of the LPs contemplated a transfer of the Assets owned by the LP on a tax deferred basis to a mutual fund corporation, thereby providing greater liquidity and continuing management of the portfolio of shares held by the LP.

PROPOSED TRANSACTIONS

LP A

5. Although it would technically be possible to wind up LP A immediately after the end of its fiscal year, there are a number of reasons why this is not considered feasible. Firstly, it is difficult, given the other time constraints and other on-going business commitments of the limited partnership to accomplish a timely liquidation immediately after the end of LP A's fiscal period. Additionally, the general partner of LP A requires a certain amount of time to have elapsed after the end of LP A's previous fiscal period in order to ensure that LP A incurred sufficient XXXXXXXXXX expenses to satisfy XXXXXXXXXX commitments made to its limited partners.

6. On or about XXXXXXXXXX, LP A will transfer the Assets to XXXXXXXXXX and all the members of LP A will jointly elect in prescribed form and within the time referred to in subsection 85(6) to have the provisions of subsection 85(2) apply. The sole consideration to be received by LP A will be shares in the capital stock of XXXXXXXXXX. The agreed amount for each share will not be less than the lesser of the amounts specified in subparagraphs 85(1)(c.1)(i) and (ii) of the Act and will not exceed the respective fair market value of each share, nor will they be less than the amounts permitted by paragraph 85(1)(b) of the Act.

7. LP A will be wound-up within XXXXXXXXXX days of the disposition described in paragraph 6 above and all property of LP A will be distributed to the Limited Partners of LP A in proportion to their interests in LP A.

8. In accordance with paragraph 2 of Interpretation Bulletin IT- 378R, Winding-up of a Partnership ("IT-378R"), dated February 15, 1980, and for legal simplification and administrative ease the Class A common shares issued by XXXXXXXXXX on the sale of the Assets, as outlined in paragraph 6 above, shall be issued in the names of the Limited Partners, instead of in the name of LP A, so that each Limited Partner will have Class A common shares of XXXXXXXXXX issued in his or her name.

The consideration received by LP A for the Assets disposed of as described in paragraph 6 above will be solely shares of XXXXXXXXXX. The number of shares issued to the Limited Partners will be determined at the time of disposition such that the fair market value of the shares issued by XXXXXXXXXX will exactly equal the net asset value of LP A.

It is the intent of XXXXXXXXXX, LP A and its Limited Partners to have the Class A common shares of XXXXXXXXXX beneficially owned by LP A and not by the individual Partners themselves at the time of issue. It is also intended (as further indicated in paragraph 2 of IT-378R) that this procedure will not invalidate the application of subsection 85(2) or the subsequent application of subsection 85(3).

9. The Limited Partners of LP A will be allocated their share of the partnership income, loss, or capital gains for the period beginning XXXXXXXXXX and ending immediately before the winding up of LP A.

LP B

10. LP B will participate in the same series of transactions described in paragraphs 5 to 9 above (mutatis mutandis).

LP C

11. LP C will participate in the same series of transactions described in paragraphs 5 to 9 above (mutatis mutandis).

LP D

12. LP D will participate in the same series of transactions described in paragraphs 5 to 9 above (mutatis mutandis).

PURPOSE OF THE PROPOSED TRANSACTIONS

13. The purpose of the proposed transactions is to comply with the objectives in the Offering Memoranda of LP A, LP B, LP C and LP D as described in paragraph 4 above.

RULING GIVEN

Provided that the statement of facts, the proposed transactions and the purpose thereof, all as described herein, are accurate and constitute complete disclosure of all of the representations, relevant facts, proposed transactions and the purposes thereof, and all of the proposed transactions are carried out as described above, and further provided that LP is a partnership at law, we confirm the following:

Subparagraphs 53(1)(e)(i) and 53(2)(c)(i) of the Act, as the case may be, will be applied to a Limited Partner who holds a Unit in an LP as capital property so that, for the purposes of determining the ACB of a Limited Partner's interest in a LP immediately before the winding up of that LP within the meaning of paragraph 85(3)(f) of the Act, any portion of that LP's income or loss for tax purposes for the fiscal period of that LP ending immediately before its winding that is allocated to that Limited Partner in accordance with paragraph 9 (and paragraphs 10, 11 and 12) above, respectively, will be included in calculating that Limited Partner's ACB of those Units immediately before the winding up of that LP (other than for the purposes of calculating the Limited Partner's ACB of those Units for the purposes of paragraph 96(2.2)(a) of the Act).

This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R4 issued by the Canada Customs and Revenue Agency on January 29, 2001 and is binding provided LP A and LP B are wound up before December 31, 2002 and LP C and LP D are wound up before XXXXXXXXXX. This ruling is based on the Act in its present form and does not take into account the effect of any proposed amendments. Except as expressly stated, our ruling does not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, we are not commenting on whether the Units will be capital property to a Limited Partner or be treated on income account. If the Units are acquired or held in the course of carrying on a business of trading or dealing in securities or as part of an adventure in the nature of trade, any disposition of Units will be afforded income treatment.

Yours truly,

XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch