6 February 1991 Ruling 902711 F - Definition of "Expenditure Base" - Logging Tax Deduction

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.

Dear Sirs:

This is in reply to your letter of September 26, 1990 in which you requested our interpretation of the portion of the definition of "expenditure base" found in subparagraph 127(8.2)(a)(ii) of the Income Tax Act (the "Act").  You also requested our confirmation that a limited partner in the circumstances described below would have an expenditure base in respect of his interest in a partnership on December 31, 1990 equal to $100.

Hypothetical situation

On January 1, 1990 an individual (the "Limited Partner") becomes a limited partner in a partnership (the "Partnership") by purchasing an interest in the Partnership for a subscription price of $100. On that date the Limited Partner pays a $1 in cash and satisfied the balance of the purchase price by way of a promissory note in the amount of $99.  On February 1, 1990 the Limited Partner pays the Partnership the $99 owing under the note.  The Partnership has no income or losses for its 1990 taxation year and the Limited Partner receives no distribution of capital from the Partnership. The Partnership's financial year ends on December 31, 1990.

Your opinion

In your view, on January 1, 1990 the Limited Partner's adjusted cost base of his partnership interest is $100 and his at-risk amount in respect of the Partnership is $1.  On December 31, 1990, however, the Limited Partner's at-risk amount in respect of the Partnership is $100, by reason of the repayment of the amount owing under the note prior to that date.  Finally, in your view the Limited Partner's expenditure base in respect of the Partnership on December 31, 1990 is $100 on the basis that the $99 payment made on February 1, 1990 is, for the purpose of subparagraph 127(8.2)(a)(ii) of the Act, an amount

"described in subparagraph 53(1)(e)(iv) contributed by the taxpayer after the time he last became a limited partner of   the partnership and before the end of the year that may reasonably be considered to have increased the taxpayer's at-risk amount in respect of the partnership at the end of the taxation year in which the contribution was made."

You take this position notwithstanding that the $99 payment made in February would not be a further contribution of capital for the purposes of calculating the Limited Partner's adjusted cost base of his partnership interest.

Our comments

We agree with you that, in the above hypothetical situation, the Limited Partner would have an expenditure base in respect of his interest in the Partnership on December 31, 1990 equal to $100 by virtue of the inclusion of the $99 payment in the calculation of the expenditure base under the provisions of subparagraph 127(8.2)(a)(ii) of the Act.

These comments represent our opinion of the law as it applies generally.  As indicated in paragraph 21 of the Information Circular IC70-6R2, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada, Taxation.

Yours truly,

for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch