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: Whether the Act contains a provision that provides for a deemed disposition of nil value limited partnership units where the partnership has not yet ceased to exist?
Position: No.
Reasons: Subsection 50(1) does not apply and there is no similar provision in the Act that would deem a disposition of nil value limited partnership units where the partnership has not yet ceased to exist.
XXXXXXXXXX
2013-048208
January 3, 2014
Dear XXXXXXXXXX:
Subject: Nil Value Partnership Units
This is in response to your email of March 11, 2013, in which you inquire as to whether there is a provision in the Income Tax Act, similar to subsection 50(1) of the Act, that would provide for a deemed disposition of nil value limited partnership units where the partnership has not yet ceased to exist. We apologize for the delay in responding.
You state in your email that a limited partnership has ceased all activity but has not legally ceased to exist. In addition, you state that all partnership funds have been lost in a failed investment and nothing is left to recover.
This technical interpretation provides general comments about the provisions of the Income Tax Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
Our Comments
In general, subsection 50(1) provides a mechanism for a taxpayer to recognize a capital loss on a debt owing to the taxpayer (other than a debt owing to the taxpayer in respect of the disposition of personal-use property) where that debt is established by the taxpayer to have become a bad debt in the year, or on a share (other than a share received by the taxpayer as consideration in respect of the disposition of personal-use property) of a corporation owned by the taxpayer where the corporation has become bankrupt or insolvent during the year. Where all the conditions of subsection 50(1) are met and the taxpayer elects to have that provision apply in respect of the debt or share, the taxpayer will be deemed to have disposed of the debt or share at the end of that year for proceeds equal to nil and to have reacquired the debt or share immediately thereafter at a cost equal to nil.
As limited partnership units are not the type of property described in subsection 50(1), that provision cannot apply to the situation at hand. Further, there is no provision in the Act that provides similar treatment for nil value limited partnership units.
As noted in paragraph 3 of Interpretation Bulletin IT-460, Dispositions Absence of Consideration, where a partnership is dissolved and the taxpayer is not entitled to and does not receive any share of the partnership's net assets (if any), the dissolution would generally result in a disposition of the partnership interest and an amount of zero may be used as proceeds of disposition for purposes of computing a loss from the disposition. However, we note that paragraph 98(1)(a) of the Act may apply to deem the partnership not to have ceased to exist and to deem each partner not to have ceased to be a partner until such time as all the partnership property and any property substituted therefor has been distributed to the persons entitled by law to receive it.
We trust the above comments will be of assistance.
Yours truly,
Chrys Tzortzis, CPA, CA
For Director
Partnerships Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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