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.
Revenue Canada Taxation
Head Office
P. Mason (613) 957-4364
June 21, 1988
Dear Sirs:
Re: Transfer of Flow-Through Shares to Mutual Fund from Partnership and Immediate Dissolution of Partnership ---------------------------------------------------------
We are replying to your letter dated April 26, 1988. In that letter, you asked us to confirm that the provisions of subsection 85(3) of the Income Tax Act, Canada (the "Act") would apply to the winding up of a partnership within 60 days of the partnership having transferred all of its assets which consisted of cash and flow-through-shares to a mutual fund corporation in exchange for shares of the mutual fund corporation. Specifically, you asked us to confirm that the partnership would be deemed to have disposed of the mutual fund corporation shares at an amount equal to the adjusted cost base to it of such shares, that it is not necessary to elect pursuant to subsection 85(2) in respect of any cash exchanged by the partnership for mutual fund corporation shares, and that the exchange of cash by the partnership for mutual fund corporation shares would not, in and of itself, result in the inapplicability of subsection 85(3) of the Act.
In our view, if any mutual fund corporation shares received by the partnership in exchange for cash were on hand immediately before the winding up, subsection 85(3) of the Act could not apply because the condition referred to in paragraph (c) thereof would not be met. We are unable to see how the cash could be a capital property, inventory, or any other type of asset listed in paragraph 85(2)(a) of the Act. Consequently, the partnership could not elect pursuant to subsection 85(2) of the Act in respect of the cash disposed of in exchange for the mutual fund corporation shares. As a result, the mutual fund corporation shares received by the partnership in exchange for the cash would not be received from the mutual fund corporation as consideration in respect of any disposition to which subsection 85(2) of the Act applied. Consequently, the condition referred to in paragraph 85(3)(c) of the Act would not be met.
Yours truly,
Chief Resource Industries Section Bilingual Services and Resource Industries Division Rulings Directorate
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