18 April 1980 Income Tax Severed Letter 7-737 - [Sale of undivided interest upon cessation of partnership]

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.

April 18, 1980

HAMILTON DISTRICT OFFICE Chief of Verification & Collections

M. Skretkowich, Office Examination Section

HEAD OFFICE B. Toyota 995-1717

Sale of Undivided Interest upon Cessation of Partnership

We have reviewed your memorandum of March 31, 1960 and the agreement submitted and offer the following comments for your consideration:

1. Where a partnership has in fact ceased and all of the partnership property (including goodwill, if any) has been distributed in such a manner that an election can be made under subsection 98(3) of the Act, each partner acquires an undivided interest in each property of the partnership (except money) and disposes of his partnership interest.

Accordingly, a person may subsequently dispose of his undivided interest in each property in whatever manner he chooses. However, in the situation under discussion, the election filed on form T2060 may technically be disallowed if goodwill isn't included even though it had no cost such that subsection 98(2) of the Act would apply to deem the proceeds of disposition of the properties to be the fair market values.

Notwithstanding the above, we are of the opinion that the election could be accepted on the assumption that the goodwill was disposed of by the partnership.

The transaction between partner A and doctor C is valid.

2. Under the above circumstances, a 97(2) election can be made by B and C with each person electing a different amount in respect of his undivided interest in each property. It is also our view that a joint venture can exist (see paragraph 4 - IT-90 ), however, see the comments in (3) below.

3. In our opinion, the agreement submitted is a partnership agree- ment and there is no reason for considering the operation of B and C to be anything other than a partnership. You indicate in your memorandum that one doctor cannot commit the other to the business liabilities and obligations. Our understanding of paragraphs 10, 11, and 12 of the agreement is that they both want to sign notes and cheques, etc. but, in the ordinary course of business if both partners are not available to do so one can commit the other to any liability and obligation in respect of the business. Paragraph 18 is a definite indication of a partnership arrangement.

We are also attaching a copy of a memorandum on the subject of "partnerships and joint ventures" which provides the rationale and references in support of a partnership. As a partnership, of course, capital cost allowance is claimed at the partnership level.

4. In view of the accountant's claim that the 97(2) election was made in error and no property was transferred, an examination of the records should be made to determine what properties the partnership owns to make up the $180.000 referred to in paragraphs 4 and 25 of the agreement and whether or not there are any subsequent agreements or correspondence to substantiate big claims.

We trust the above will be of assistance to you.

Chief Services, Public Utilities, and Exempt Corporations Section Corporate Rulings Division Corporate Rulings Directorate Legislation Branch

Attachments BT/jw