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 the "Modified Partnership" basis described in IC 73-13 would permit an investment club to transfer its assets to its members and then wind up its affairs on a tax deferred rollover basis through the initial use of subsection 98(3).
Position: No.
Reasons: Such a scenario appears to fall beyond the intent and purpose of the "modified partnership" basis described in paragraphs 5 and 8 of the Circular.
The particular tax-deferred rollover provision of the Act can only be used by partnerships which, as stated in paragraph 1 of the Circular, would not include investment clubs using the modified partnership basis.
In any event, whether a particular arrangement is a partnership is a question of fact to be determined by the relevant provincial law.
XXXXXXXXXX Frank Fontaine, FCCA
2001-010701
November 16, 2001
Dear XXXXXXXXXX:
Re: Investment Club using "Modified Partnership" Basis
This is in reply to your letter dated October 15, 2001 requesting our comments concerning an investment club that uses the modified partnership basis, described in Information Circular 73-13 (the "Circular"), where such a club transfers its assets directly to its members pro-rata through the use of subsection 98(3) of the Income Tax Act (the "Act") and then winds up its affairs.
As described in paragraphs 5 and 8 of the Circular, the treatment of a club as a partnership for the purposes of the "modified partnership" basis is an optional method to the "undivided interest" method, and was intended to facilitate compliance and administration with the reporting, by members of the club, of capital gains and losses and other income determined by the club, at the club level, for a particular taxation year.
It is our view that the transfer by a club of its assets to its members on a tax-deferred rollover basis leading to the club's wind-up relates to a situation that falls beyond the intent and purpose of the modified partnership basis described in the immediate paragraph above; considering that the particular tax-deferred rollover provision of the Act would apply only to partnerships which, as indicated in paragraph 1 of the Circular, do not include clubs that have elected to use the modified partnership basis.
The position described in the Circular does not, in and of itself, determine that an investment club is a partnership. Such determination depends on a finding of fact. As stated in IT-90, for guidance on whether a particular arrangement at a particular time constitutes a partnership, reference should be made to the relevant provincial law on the subject, and such law will be viewed as persuasive by the Canada Customs and Revenue Agency ("CCRA").
The foregoing comments represent an opinion expressing 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 advance income tax ruling and, accordingly, are not binding on the CCRA.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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