12 July 1995 External T.I. 9428785 - GENERAL SCHEME OF PARTITION

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 paragraph 248(21)(b) of the Act would apply to a general scheme of partition described by the taxpayer.

Position TAKEN:

Yes provided the land is subdivided in the course of or in contemplation of a partition.

Reasons FOR POSITION TAKEN:

Question of fact.

		942878
XXXXXXXXXX	Wm. P. Guglich
(613) 957-8953

Attention: XXXXXXXXXX

July 12, 1995

Dear Sirs:

Re: Partition of Real Property

This is in reply to your letter of November 8, 1994 concerning partitions of real property and the application of subsections 248(21) and 248(20) of the Income Tax Act (the "Act").

You informed us that in British Columbia, a partition of real property is typically undertaken in the following manner:

1.Owner A and Owner B (collectively the "Joint Owners") of real property will sign a partition agreement (the "Partition Agreement") by which they agree as to a mechanism to partition the land. The Partition agreement is not registerable in the relevant British Columbia Land Title Office.

2.The Joint Owners will then prepare and concurrently file the following documents in the appropriate Land Title Office:

(a) Application for Registration of Subdivision Plan;

(b)Subdivision Plan creating two or more parcels of land;

(c)A transfer from the Joint Owners to Owner A of particular parcels of the subdivision and a transfer from the Joint Owners to Owner B of other particular parcels of the subdivision.

3.The documents referred to in paragraph 2 above are typically filed together on the basis that none of the documents will be effective unless all are effective.

4.The Land Title Office first registers the Subdivision Plan against the Property and, immediately afterward, the Land Title Office registers the transfers.

It is your understanding that paragraph 248(21)(b) of the Act would apply to the above general scheme of partition. It is your view that the fact that the subdivision plan must be registered before the transfer of divided interests to the Joint Owners does not jeopardize the potential for "rollover" treatment under subsection 248(21) of the Act. Specifically, you assume that all of the steps of the typical transaction will be treated as part of the partition even though the British Columbia Land Title Office requires partition to occur in a multi-step process. You emphasized that the steps invariably all occur one immediately after the other, and no transfer of property will occur unless all steps occur.

You requested our confirmation that, provided the prerequisites contained in the preamble to subsection 248(21) of the Act are met in a particular transaction, paragraph 248(21)(b) of the Act will apply in the scenario outlined above such that each interest of each person shall be deemed to be a continuation of that persons undivided interest in the property immediately before the partition. You raise this concern because of a comment in a letter from our Department which indicated that there may be a disposition where subsequent to the partition several of the parcels continue to be held in joint ownership by all the joint owners and the joint owners subsequently exchange, with each other their undivided interests for divided interests. You are concerned about the meaning of "subsequent to the partition" in the context of that comment. It is your view that the comment does not apply where transfers are filed from the Joint Owners to Owner A and to Owner B immediately after the filing of the subdivision plan in the circumstances described above.

Our Views

In the preamble in subsection 248(21) of the Act the term "a property" is used. This means a singular property or one property. Paragraph 248(21)(c) modifies the meaning of this term so that subdivisions of land established in the course of or in contemplation of a partition shall be regarded as one property. In the Department's letter, which you referred to, our understanding of the hypothetical situation was that one piece of land would be subdivided into parcels of land and the joint owners would transfer some of the pieces of land of equal value so that each owner receives a divided interest in a particular piece of land and other pieces of the subdivided land (the "Other Pieces") will continue to be held in joint ownership. After a period of time, the joint owners exchange with each other their undivided interests in the Other Pieces for divided interests in individual pieces of land. It appears that an assumption was made in our letter that the Other Pieces were not subdivided in the course of or in contemplation of a partition and, consequently, these Other Pieces could not be considered one property. Since subsection 248(21) would not apply there would be a disposition of the Other Pieces and subsection 248(20) of the Act would apply. In a particular case, it would be a question of fact whether a particular parcel of land has been subdivided in the course of or in contemplation of a partition.

We agree that, in the general scheme of partition described above, paragraph 248(21)(b) of the Act would apply, provided the prerequisites contained in subsection 248)(21) are met in the particular transaction.

We trust our comments will be of assistance to you.

Yours truly,

R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch