9 March 2012 External T.I. 2011-0416611E5 - disposition under paragraph 38(a.3)

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: calculation of ACB of a partnership interest where the partnership has disposed of property that qualifies under paragraph 38(a.3)

Position: Paragraph 38(a.3) provides an exemption from income tax for taxable capital gains that arise on certain donations of property. Since clause 53(1)(e)(i)(A) does not explicitly state that the Act is to be read without reference to paragraph 38(a.3), there is no authority for adding exempt capital gains pursuant to this paragraph to the ACB of the partnership interest.

Reasons: The law.

XXXXXXXXXX
				2011-041661
				J. Gibbons

March 9, 2012

Dear XXXXXXXXXX :

Re: Disposition under Paragraph 38(a.3) by a Partnership

This is in reply to your email dated August 10, 2011, concerning the calculation of the adjusted cost base (the "ACB") of an interest in a partnership where the partnership has disposed of property that qualifies under paragraph 38(a.3) of the Income Tax Act (the "Act").

In particular, your question relates to whether the ACB of the interest in the partnership should be calculated as if the Act were read without reference to paragraph 38(a.3) of the Act, similar to the treatment under clause 53(1)(e)(i)(A) for dispositions that qualify under paragraphs 38(a.1) and (a.2) of the Act. In this regard, you have noted that clause 53(1)(e)(i)(A) does not explicitly state that the Act is to be read without reference to paragraph 38(a.3) of the Act.

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 submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Also, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we are prepared to offer the following general comments.

Paragraphs 38(a.1) through (a.3) of the Act provide an exemption from income tax for taxable capital gains that arise on certain charitable donations of property. Where paragraph 38(a.1) or (a.2) of the Act applies to a donation by a partnership, clause 153(1)(e)(i)(A) of the Act ensures that the exempt gains on such a disposition will be added to the ACB of a partner's interest in that partnership and will not be taxed subsequently on a later disposition of that partnership interest.

In our view, since clause 53(1)(e)(i)(A) of the Act does not explicitly state that the Act is to be read without reference to paragraph 38(a.3) of the Act, there is no authority for adding exempt capital gains pursuant to this paragraph to the ACB of an interest in a partnership. Since your concerns relate to tax policy and this is the responsibility of the Department of Finance, we have brought your comments to their attention.

We trust these comments will be of assistance.

Yours truly,

G. Moore
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch