3 May 1993 External T.I. 9238535 F - Transfer by Partner to 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.

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Attention:  XXXXXXXXXX

Dear Sirs:

RE:  Transfer by a Partner to a Partnership

This is in reply to your letter dated December 18, 1992, wherein you request an interpretation regarding subsection 97(1) of the Income Tax Act (the "Act"). We apologize for the delay in responding to your request.

You are concerned that the deeming provisions of subsection 97(1) of the Act may prevent a partner transferring capital property to his partnership in return for a promissory note payable over five years, and who has not elected under subsection 97(2), from claiming a reserve under section 40 of the Act. You refer to the decision Derlago v. The Queen, 88 DTC 6290.

We are of the view that nothing in subsection 97(1) of the Act leads to conclude that some portion or all of the deemed proceeds should be deemed to be payable at some other time than the time of disposition. Parliament must have intended the deemed proceeds to have been received by the taxpayer.

In our opinion, the partner is in the same financial position as if he had received a larger interest in the capital of the partnership. He would then have received proceeds ineligible for a reserve and may have been subject to the same restrictions on the withdrawal of his capital.

We therefore cannot share your view that this result is unreasonable in view of the possible election available to the taxpayer under the provisions of subsection 97(2) of the Act.

We trust that these comments will be of some assistance.

Yours truly,

for Director Manufacturing Industries, Partnerships and Trusts DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch