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 subsection 100(1) would apply because of subsection 100(1.1) in respect of a disposition of a partnership interest by a taxpayer where the interest is acquired by a partnership whose members include trusts under RRSP?
Position: Yes, but subject to a de minimis rule.
Reasons: Subject to the de minimis rule in subsection 100(1.2), subsection 100(1) would apply because of subparagraph 100(1.1)(c)(i) to the extent that the partnership interest is held by persons exempt from tax under section 149, including RRSP trusts exempt under paragraph 149(1)(r).
XXXXXXXXXX
2013-048243
Jennifer Ouimet
November 13, 2013
Dear XXXXXXXXXX:
Subject: Subsection 100(1) and trusts under RRSP
This is in response to your email of March 14, 2013, regarding recently enacted subsection 100(1.1) of the Income Tax Act.
In your email, you describe a situation where one partnership (Partnership A) disposes of its interest in another partnership (Partnership B) to a third partnership (Partnership C), which has members that are trusts under a registered retirement savings plan (RRSP). Further, you state that Partnership B owns only depreciable property.
More specifically, you ask whether subsection 100(1.1) of the Act would cause amended subsection 100(1) of the Act to apply in determining a taxpayer's taxable capital gain from the disposition of a partnership interest where the interest is acquired by a partnership whose members include trusts under RRSP.
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
Where a partnership interest is acquired by a person or partnership described in any of paragraphs 100(1.1)(a) to (d) of the Act, the taxpayer's taxable capital gain for a taxation year from the disposition of the partnership interest may be increased pursuant to the rules in subsection 100(1) of the Act. In general, these rules deem that a taxpayer's taxable capital gain for a taxation year from the disposition of a partnership interest is one-half of the portion of the taxpayer's capital gain that can reasonably be attributed to increases in the value of the non-depreciable capital property of the partnership plus the whole of the remaining portion of that capital gain.
Paragraphs 100(1.1)(a) and (b) of the Act refer to direct acquisitions of a taxpayer's interest in a partnership by a person exempt from tax under section 149 of the Act or a non-resident person, respectively. Paragraphs 100(1.1)(c) and (d) of the Act provide look-through rules where the partnership interest is acquired by another partnership or by a trust resident in Canada (other than a mutual fund trust). In particular, under subparagraph 100(1.1)(c)(i) of the Act, the look-through rule applies to the extent that the partnership interest acquired by the other partnership can reasonably be considered to be held, indirectly through one or more partnerships, by a person that is exempt from tax under section 149. However, subsection 100(1.2) of the Act provides a 10% de minimis exception from the application of the look-through rules in paragraphs 100(1.1)(c) and (d). In general, the exception applies if the extent to which subsection 100(1) would, but for this exception, apply to the taxpayer's disposition does not exceed 10% of the taxpayer's interest.
Accordingly, subject to the de minimis rule in subsection 100(1.2) of the Act, subsection 100(1) of the Act will apply to the situation described in your email because of subparagraph 100(1.1)(c)(i) of the Act to the extent that the partnership interest is held by persons exempt from tax under section 149 of the Act, including RRSP trusts exempt under paragraph 149(1)(r). For an illustration of the proportionate application of subsection 100(1) where the interest is held by taxable persons and persons exempt from tax, please refer to Example 1 provided in the October 2012 Explanatory Notes to subsection 100(1.1) which are available on the Department of Finance Canada website at www.fin.gc.ca.
We trust our 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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