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.
This memorandum is in response to yours dated May 4, 1989 with respect to a situation where a Canadian limited partnership elected under subsection 85(2) to transfer its only assets which were flow-through shares in Corporation A to Corporation A in exchange for other shares of Corporation A and where the partnership subsequently wound up its affairs within 60 days of the transfer, distributing the newly acquired shares of Corporation A to its partners under subsection 85(3) of the Act. It is your view that subsections 85(2) and (3), if used in this manner, would give the same results as if subsections 98(3) and 85(1) had been used. Consequently, the partners of the limited partnership received the shares of Corporation on a tax-deferred basis without using the provisions of subsections 98(3) and 85(1).
Provided that the flow through shares were eligible property as described in paragraph (a) of subsection 85(2), we agree with your view that subsections 85(2) and 85(3) could be used "to wind up a partnership and to distribute the partnership property which was the newly acquired shares of Corporation A to the partners on a tax deferred basis in lieu of subsections 98(3) and 85(1). As it is not practical to distribute an undivided interest in the flow-through shares to the partners under subsection 98(3), some partnerships chose to transfer the shares under subsection 85(2) to the corporation which issued the shares in exchange for shares with identical rights and privileges and to distribute these new shares to the partners under subsection 85(3) upon the winding up of the partnership within 60 days of the transfer.
If identical shares of the same corporation are received by the partnership, it is arguable that a disposition of the shares may not have occurred for the purposes of subsections 85(1) and (2). However, in a situation similar to that mentioned in your memorandum, we have stated that the transfer of shares is considered to constitute a disposition of partnership property to which subsection 85(2) applies in the answer to Question 48 of the 1987 Revenue Canada Round Table.
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© Her Majesty the Queen in Right of Canada, 1989
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© Sa Majesté la Reine du Chef du Canada, 1989
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