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: In computing the ACB to a taxpayer of a partnership interest, whether subparagraph 53(1)(e)(vi) is applicable at the end of the fiscal period of a partnership or after the end of the fiscal period of a partnership.
Position: After the end of the fiscal period of a partnership.
Reasons: Wording of 40(3.1) and 53(1)(e)(vi).
XXXXXXXXXX 2024-103181
R. Gagnon
August 15, 2024
Dear XXXXXXXXXX,
Re: Application of Subparagraph 53(1)(e)(vi)
We are writing in response to your letter dated August 5, 2024, in which you essentially requested that the Canada Revenue Agency (“CRA”) reconsider its position concerning the application of subparagraph 53(1)(e)(vi) of the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1, as amended (“Act”), as stated in technical interpretation no. 2009-0349911E5 (“TI”).
All references herein to a statute are to the relevant provision of the Act.
In the situation as described in TI, the CRA indicated that the adjusted cost base (“ACB”) of the partnership interest held by the limited partner is negative of $90,000 on December 31, 2008, and the result is a deemed capital gain of $90,000 and the ACB of the partnership interest is reduced to nil as of December 31, 2008 (pursuant to subparagraph 53(1)(e)(vi)).
Your Views
In summary, your view is that subparagraph 53(1)(e)(vi) is applicable after the end of the fiscal period of a partnership. You said that in the situation described in the TI, when determining the ACB of the limited partner’s partnership interest immediately after December 31, 2008 (i.e. January 1, 2009), the ACB of the limited partner’s partnership interest should include the $90,000 gain from the deemed disposition under subsection 40(3.1) pursuant to subparagraph 53(1)(e)(vi), which would then bring the ACB of the partnership interest to nil. At the end of December 31, 2008, the partner should still have a negative ACB of $90,000 for its partnership interest as the deemed partnership disposition under subsection 40(3.1) occurs at “the end of the fiscal period” of the partnership, which is December 31, 2008.
Our Comments
Subsection 40(3.1) provides:
40(3.1) Deemed gain for certain partners — Where, at the end of a fiscal period of a partnership, a member of the partnership is a limited partner of the partnership, or is a member of the partnership who was a specified member of the partnership at all times since becoming a member, except where the member’s partnership interest was held by the member on February 22, 1994 and is an excluded interest at the end of the fiscal period,
(a) the amount determined under subsection (3.11) is deemed to be a gain from the disposition, at the end of the fiscal period, of the member’s interest in the partnership; and
(b) for the purposes of subsection 2(3), section 110.6, subsections 116(6) and (6.1) and section 150, the interest is deemed to have been disposed of by the member at that time.
[Underline emphasis added.]
The preamble of subsection 53(1), paragraph 53(1)(e) and subparagraph 53(1)(e)(vi) provide:
53(1) Adjustments to cost base [additions] — In computing the adjusted cost base to a taxpayer of property at any time, there shall be added to the cost to the taxpayer of the property such of the following amounts in respect of the property as are applicable: …
(e) [Addition to cost base (of an interest in a partnership)] — where the property is an interest in a partnership, …
(vi) any amount deemed by subsection 40(3.1) to be a gain of the taxpayer for a taxation year from a disposition before that time of the property,
[Underline emphasis added.]
Subsection 40(3.1) provides that the amount (negative ACB) determined under subsection 40(3.11) is deemed to be a gain from the disposition of a member’s interest in a partnership, at the end of the fiscal period of a partnership. Under subparagraph 53(1)(e)(vi), the amount is added immediately after the time of the gain from the disposition of the member’s partnership interest. Accordingly, in computing the ACB to a taxpayer of a partnership interest, subparagraph 53(1)(e)(vi) is applicable after the end of the fiscal period of a partnership.
We agree with you that, in the situation described in the TI, the ACB of the partnership interest at the end of December 31, 2008 should be a negative amount of $90,000 and the addition of $90,000 under subparagraph 53(1)(e)(vi) should be made on January 1, 2009.
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
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