19 December 2001 External T.I. 2001-0101205 - PARTNERSHIP INTEREST; RETIRED PARTNER

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 disposition of interest in partnership that is a capital property is a disposition of one capital property notwithstanding that certain partners may be entitled to enter into retirement agreements when they cease to be partners

Position: generally yes

Reasons: interest in a partnership is generally one bundle of rights

		2001-010120
XXXXXXXXXX 	Denise Dalphy, LL.B.
(613) 957-9231
December 18, 2001

Dear XXXXXXXXXX:

Re: Subsection 96(1.1) of the Income Tax Act (the "Act")

We are writing in reply to your letter dated September 10, 2001 wherein you requested a technical interpretation of the above-noted subsection of the Act.

The particular circumstances in your letter on which you have asked for our views appear to be a factual situation involving specific taxpayers and agreements (which we do not have copies of). As explained in Information Circular 70-6R4 (the "Circular"), it is not this Directorate's practice to comment on specific proposed transactions involving particular taxpayers other than in the form of an advance income tax ruling. However, we are prepared to offer the following general comments.

In our view, a transfer of a partnership interest, that was held on capital account by an active (not retired) partner, to a corporation that will be controlled by that partner in a situation where the partnership agreement contains provisions with respect to the withdrawal of partners (including provisions that would allow certain retiring partners to enter into retirement agreements pursuant to which they would be contingently entitled to receive payments based on a number of factors, including years of service and annual income, from an unfunded retirement plan) would generally be a disposition of one capital property that is a continuing interest in a partnership. Once a particular partner has ceased to be a member of the partnership and the members of the partnership have agreed to provide that retired partner with a share in the income or loss of the partnership, the retired partner would generally have acquired a separate property that is a right to income pursuant to the retirement agreement, which would likely be subject to the provisions of subsections 96(1.1) to (1.6) of the Act.

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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