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 116(5) of the Income Tax Act applies to a non-resident partner who is deemed to have realized a gain from a disposition of the partnership interest pursuant to subsection 98(1) on the dissolution of the partnership.
Reasons: Subsection 98(1) does not deem the partnership interest to be disposed to a purchaser.
Ina Eroff, B.C.L./LL.B.
August 9, 2017
Re: Interaction between subsections 98(1) and 116(5) of the Act
This is in reply to your email of June 9, 2017 where you requested our comments on whether subsection 116(5) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1, as amended, (the “Act”) applies where a non-resident partner of a partnership, whose interest in the partnership is “taxable Canadian property” as defined in subsection 248(1) of the Act, is deemed pursuant to subsection 98(1) of the Act to have realized a gain from a disposition of the partnership interest on the dissolution of the partnership.
This technical interpretation provides general comments about the provisions of the Act. 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 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Paragraph 98(1)(c) of the Act provides that if a partnership has ceased to exist, any negative adjusted cost base to a taxpayer of an interest in the partnership at the end of a fiscal period shall be deemed to be a capital gain of the taxpayer from a disposition of the interest in the partnership. Subsection 116(5) of the Act imposes a tax liability on a purchaser who acquires any “taxable Canadian property” from a non-resident person. Paragraph 98(1)(c) of the Act does not deem the partnership interest to be disposed to a purchaser. In particular, absent a specific deeming rule, the partnership itself will not be considered to be a purchaser of the partnership interest. Accordingly, it is our view that subsection 116(5) of the Act will not apply to a cessation of a partnership subject to paragraph 98(1)(c) of the Act.
We hope this information is of assistance to you.
Olli Laurikainen, CPA, CA
For Division Director
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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