29 October 2009 External T.I. 2009-0317211E5 - Conversion SIFT Trust to Corporation

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.

Principal Issues: How to determine the cost of a partnership interest acquired by a corporation on a windup to which subsection 88.1(2) applies.

Position: The cost would be determined pursuant to paragraph 87(2)(e.1) .

Reasons: Where subsection 88.1(2) applies to a distribution of property, subsections 88(1) to (1.7) of the Act, and section 87 and paragraphs 256(7)(a) to (e) as they apply for the purposes of those subsections, apply to the distribution with any modifications as the circumstances require.

XXXXXXXXXX 2009-031721

October 29, 2009

Dear XXXXXXXXXX :

This is in response to your e-mail of April 8, 2009 requesting a technical interpretation on the application of subsection 88.1(2) of the Act to a situation where all of the units of an income trust have been acquired by a corporation that was created for the purpose of the trust's "conversion" to corporate form (Pubco), the trust distributes the units it holds in a limited partnership to Pubco, the conditions of subsection 88.1(1) are otherwise satisfied and, following the distribution, the trust ceases to exist.

Specifically, you have asked that we confirm that the cost to Pubco of the interest in the partnership referred to in subparagraph 88(1)(c)(i) would be the cost determined pursuant to paragraph 87(2)(e.1) of the Act. In this regard, you have noted that, where subsection 88.1(2) applies to a distribution of property, subsections 88(1) to (1.7) of the Act, and section 87 and paragraphs 256(7)(a) to (e) as they apply for the purposes of those subsections, apply to the distribution with any modifications as the circumstances require. As such, the cost of the partnership interest to Pubco would be the amount determined pursuant to paragraph 88(1)(c), which amount is computed with reference to the cost of the property that would be determined without reference to that paragraph.

Pursuant to paragraph 88(1)(e.2), paragraph 87(2)(e.1) applies to subsections 88(1) to (1.7) with certain changes. Having regard to those changes, and to the changes specifically referred to in subsection 88.1(2), paragraph 87(2)(e.1) would apply for the purposes of paragraph 88(1)(c) if the partnership interest is capital property acquired by Pubco from the trust, and if Pubco and the trust were related. Your concern is that, for the purposes of subsections 88(1) to (1.7), the technical requirements to find that Pubco and the trust are related (or deemed to be related) may not be met.

We agree that, as subsections 88(1) to (1.7), and section 87 as it applies for the purposes of those subsections, are to apply to a distribution that is subject to subsection 88.1(2) with such modifications as the circumstances require, paragraph 87(2)(e.1) would apply to determine the cost to Pubco of the interest in the LP for purposes of paragraph 88(1)(c).

This opinion is provided in accordance with the comments in paragraph 22 of Information Circular 70-6R5. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an Advance Income Tax Ruling request. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office.

Yours truly,

Robin Maley
For Director
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch