28 January 1994 External T.I. 9331205 - Reserves of Insurance Agents

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.

RULINGS DIRECTORATE CORRESPONDENCE SUMMARY

DOCUMENT TYPE:

Opinion

PRINCIPAL ISSUES:

Can a former partner continue to claim a reserve re: ss. 32(3) — which had been previously claimed by the partnership — subsequent to the dissolution of the partnership and the distribution of its property.

POSITION TAKEN:

Yes

REASONS FOR POSITION TAKEN:

Similar positions adopted previously re 20(1)(l),(n),(p) and 40(1)(a)(iii).

Attention: XXXXXXXXXX

January 28, 1994

Dear Sirs:

Re: Subsections 32(1) and (3) of the Income Tax Act

We are writing in response to your correspondence of October 21, 1993 concerning the availability of a reserve as determined pursuant to subsection 32(3) of the Income Tax Act (the "Act") by the former partners of a partnership following the winding up of that partnership in accordance with the provisions of subsection 98(3) of the Act. We apologize for the delay in replying to your letter.

As you note, such a partnership would, pursuant to subsection 32(2) of the Act, be required to include in its income for its final taxation year the amount of any reserve deducted by it in the prior taxation year pursuant to subsections 32(1) and (3) of the Act as the particular case may be. Any such partnership would not be permitted to claim a reserve in the final taxation year.

As you indicated, the Department has expressed the view that former partners will, in certain circumstances, be eligible to claim a reserve provided for under paragraph 20(1)(n) of the Act subsequent to the winding up of a partnership pursuant to subsection 98(3) of the Act. Similarly, paragraph 28 of Interpretation Bulletin IT-442R provides that, if a partnership is dissolved in circumstances such that subsection 98(3) of the Act applies, the former partners will be entitled to a deduction under paragraphs 20(1)(l) and (p) of the Act in respect of accounts receivable taken over directly.

Consistent with the above, it is our view that, provided a former partner carries on the business of an insurance agent or broker as described in subsection 32(3) of the Act subsequent to the winding up of the partnership, the partner may claim a reserve as determined pursuant to that subsection on the assumption that the partner was the taxpayer which carried on the business in respect of which the reserve was claimed in both of the years referred to in paragraphs 32(3)(k) and (l) of the Act and in any subsequent years.

The availability and extent of the reserve would be determined with reference to the reserve claimed by the partnership, the amount of the income of the partnership from carrying on business as an insurance agent or broker and the amount of income allocated to the partner from that source.

Although we trust that our comments are of assistance to you, they do not constitute an advance income tax ruling and are, accordingly, not binding upon the Department with respect to any particular transaction.

Yours truly,

for Director Financial Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch