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.
K.H. Major (613) 995-1178
May 5, 1983
Dear XXXX
This is in reply to your letter of March 1, 1983 in which you were concerned about the application of paragraph 85(3)(e) of the Income Tax Act (the Act) in the following hypothetical situation:
(a) A corporation acquired land in 1965 and constructed an apartment building thereon (the "Company"). A mortgage was granted by the Company to an institutional lender (the "Mortgage");
(b) In 1967, the land and building were transferred to a Canadian partnership (the "Partnership"). The Partnership assumed the Mortgage and paid for the land by way of an agreement for sale;
(c) It is now proposed that the land be transferred back to the Company and the Partnership be liquidated pursuant to Section 85(2) and Section 85(3) of the Income Tax Act;
(d) On the transfer under Section 85(2), it is proposed that the consideration to the Partnership for the transfer of the land be a combination of the assumption of the Mortgage, preferred shares equal in value to the adjusted cost base of the Partnership interests of the partners in the Partnership, and common shares equal to the balance up to the fair market value.
In our view, the adjusted cost base of the preferred shares to the partner after the distribution of those shares from the Partnership to the partners is not reduced under the provisions of paragraph 85(3)(e) of the Act by the amount of the Mortgage assumed, as the assumption of the Mortgage by the company does not represent consideration received by a partner for the disposition of his interest in the partnership.
However, the Mortgage assumed by the company will be taken in account in determining the adjusted cost of the preferred shares to the partnership in accordance with the provisions of subsections 85(1) and (2) of the Act.
In addition, in our view, in order to qualify under the provisions of subsections 85(2) and (3) of the Act all the property of the Partnership must be disposed of to one corporation (the corporation) and immediately before the winding- up of the Partnership, there must be no partnership property other than money or property received from the corporation as consideration for the disposition of its assets.
We trust that this information will be of assistance to you.
Yours truly,
for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation 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, 1983
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, 1983
Email this Content