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 cost recovery method as described in IT-426R (Archived) should be applicable to Canadian resident partners of partnerships that sell shares subject to an earnout agreement.
Position: No position disclosed in the letter.
Reasons: The Income Tax Rulings Directorate will re-examine that issue in consultation with internal stakeholders.
XXXXXXXXXX 2023-099414
R. Gagnon
February 1, 2024
Dear XXXXXXXXXX:
Re: Cost Recovery Method in Interpretation Bulletin IT-426R (Archived) & Partnerships
We are writing in response to your letter dated October 6, 2023, in which you essentially requested that the Canada Revenue Agency (“CRA”) reconsider its positions as stated in technical interpretation 2021-0884651E5 in which the CRA concluded that the conditions in paragraph 2 of Interpretation Bulletin IT-426R (Archived) (“IT-426R”) were not designed to apply to limited partnerships, and that the cost recovery method (as described in IT-426R) therefore cannot be applied, where a Canadian resident taxpayer is a member of a partnership that sells shares of a corporation.
You also asked questions and made representations concerning the application of the cost recovery method to Canadian resident taxpayers that are members of partnerships that sell shares of a corporation. We appreciate your representations to us on that issue.
Our Comments
Following your representations, the CRA is prepared to re-examine whether the cost recovery method should apply to Canadian resident taxpayers that are members of partnerships that sell shares subject to an earnout agreement. Any change of position would require amendments to the conditions for the application of the cost recovery method (as stated in paragraph 2 of IT-426R) in the context of partnerships.
In its review, the Income Tax Rulings Directorate will have to consult internal stakeholders and the whole process may take some time. Therefore, any change of position would likely be disclosed at a future CRA Round Table, rather than in the context of a technical interpretation. At this time, we believe that it may not be necessary to respond to the questions in your letter.
We trust our comments will be of assistance.
Yours truly,
Urszula Chalupa, LL.B, M. Fisc.
for Division Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2024
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2024
Email this Content