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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether capital gains exemption limits are calculated at the partnership or partner level.
Position TAKEN:
They are calculated at the partner level
Reasons FOR POSITION TAKEN:
110.6 is only available to individuals.
A partnership is not a person except for the purpose of calculating income, not taxable income. 96(1)(a), 96(1)(c)
capital gains are flowed through to the partners. 96(1)(f)
933164
XXXXXXXXXX B. Kerr
Attention: XXXXXXXXXX
March 24, 1994
Dear Sirs:
Re: Subsection 110.6(2.1) of the Income Tax Act
This is in response to your letter of November 1, 1993, wherein you have requested a technical interpretation concerning the availability of the capital gains exemption and the allocation of capital gains to members of a partnership.
Unless otherwise stated all references to statute are references to the Income Tax Act S.C. 1970-71-72, c.63 as amended consolidated to June 10, 1993 (the "Act").
You have asked us to confirm that the capital gains exemption limits are not calculated at the partnership level and that as a result the members of a partnership can each claim a full $500,000 capital gains exemption on their share of the capital gain realized by the partnership upon the disposition of "qualified small business corporation shares".
The capital gains deduction falls within Division C of the Act which deals with the computation of taxable income. The deductions available under section 110.6 of the Act are only available to individuals other than trusts. Any amounts deductible under this section would be deducted from the income of a taxpayer in computing taxable income which is defined in subsection 2(2) of the Act. Since a partnership is neither an individual nor a person, except for the purposes of calculating income, the deductions under section 110.6 are not available to a partnership. Accordingly, we would confirm that the limits imposed under section 110.6 would not be at the partnership level but rather at the individual partner level.
In our view, when a partnership disposes of capital property (other than listed personal property) any taxable capital gain or loss arising on the disposition is calculated as if the partnership were a separate person by virtue of paragraph 96(1)(c) of the Act. Any taxable capital gains or allowable capital losses so determined are allocated to the members of the partnership and included in determining their income or net capital loss, if any, for the year. Where a partner is an individual, any taxable capital gains or allowable capital losses allocated are taken into account in determining his or her capital gains deduction for the year under section 110.6 of the Act.
We would also note that in Question # 49 at the 1986 Revenue Canada Round Table held at the Annual Conference of the Canadian Tax Foundation, the Department was asked the following question:
If a partnership disposes of a capital asset and realizes a capital gain on the disposition, could a partner who is an individual resident in Canada use his lifetime capital gains exemption in respect of his share of the gain?
Our response
The capital gains exemption would be available to an individual partner in respect of capital gains allocated by the partnership, subject to the provisions of subsection 110.6(11).
This continues to be our position. In addition when a partnership disposes of capital property that is "qualified small business corporation shares" as defined in subsection 110.6(1) of the Act resulting in a taxable capital gain, it is our opinion that each individual partner would be eligible to claim the enhanced capital gains deduction under subsection 110.6(2.1) of the Act subject to the provisions of subsection 110.6(11).
As stated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, the opinions expressed in this letter are not rulings and are consequently not binding on the Department.
We trust that these comments will be of assistance.
Yours truly,
R. Albert
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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