Principal Issues: (1) Can a partnership transfer property to a corporation under subsection 85(2) without any tax consequences where the non-share consideration is in excess of the elected amount? (2) Where subsection 85(3) is applicable, does the wind-up of the partnership result in a disposition of the partnership interest? If yes, what are the tax consequences where a general partner has a negative adjusted cost base?
Position: (1) No. (2) Yes, the wind-up would result in a disposition of the partnership interest and a general partner with a negative adjusted cost base would have a gain pursuant to subsection 100(2).
Reasons: (1) Subject to paragraph 85(1)(c), paragraph 85(1)(b) provides that the elected amount cannot be less than boot. (2) The definition of "disposition" under subsection 248(1) includes any transaction or event entitling a taxpayer to proceeds of disposition of the property and paragraph 85(3)(g) deems the amount of the proceeds of disposition where subsection 85(3) is applicable. Further, paragraph 85(3)(g) specifically refers to "the disposition of the interest". Thus, subsection 100(2) would apply.