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.
920772
A.Y. Ho
24(1) (613) 957-4796
Attention: 19(1)
July 2, 1992
Dear Sirs:
This is in reply to your letter of March 9, 1992 wherein you requested our opinion whether a partnership disposed of a property at fair market value to a corporation for the purposes of subsections 69(11) of the Income Tax Act (the "Act") where an election under subsection 85(2) was made.
The situation you described appears to reflect a factual situation, as stated in paragraph 21 of the Information Circular 70-6R2, we do not provide opinions on specific fact situations. However, we can provide you with the following general comments.
Our Comments
Subsection 69(11) of the Act sets out an anti-avoidance rule which, in certain circumstances, prevents a person or partnership from disposing of a property as part of a series
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of transactions for proceeds less than fair market value so as to obtain the benefit of the tax deductions or entitlements of certain persons or partnerships on a subsequent disposition of the property.
In the case of an amalgamation or merger, there may not technically be a disposition of property from a predecessor corporation to the new corporation formed as a result of the amalgamation or merger. Accordingly, subsection 69(13) of the Act deems the property of a predecessor corporation as having been disposed of immediately before the amalgamation or merger.
A partnership may be subject to subsection 69(11) of the Act if it has transferred property with an accrued gain on a tax-free basis using the provisions of subsection 85(2) of the Act. If subsection 85(2) of the Act applies, then the provisions under paragraphs 85(1)(a) to (i) of the Act will apply to the transfer. Paragraph 85(1)(a) of the Act deems the agreed amount to be the partnership's proceeds of disposition of the property transferred. Therefore, if the agreed amount is less than the fair market value of the transferred property, the proceeds of disposition are considered to be less than fair market value for the purposes of subsection 69(11) of the Act despite the fact that they may otherwise be considered to be at fair market value.
We trust the above comments are of assistance.
Yours truly,
Chief
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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