29 January 1997 External T.I. 9635975 - PARTNERSHIP TO SOLE PROPRIETOR

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:

cost of property received by proprietor who carries on business of partnership

Position:acb=cost

Reasons:law

		963597
XXXXXXXXXX	S.J. Tevlin

Attention: XXXXXXXXXX

January 29, 1997

Dear Sirs:

Re: Section 80 of the Income Tax Act (the "Act")

We are writing in response to your letter of October 21, 1996 wherein you requested our opinion with respect to the debt forgiveness rules in section 80 of the Act. We apologize for the delay in responding to your enquiry.

In order for section 80 of the Act to apply there has to be a "forgiven amount". In general the forgiven amount, at any time, is determined by the formula A - B, where

A is the lesser of the amount for which the obligation was issued and the principal amount of the obligation and,

B is the aggregate of nine different elements, one of which is:

(j) -such portion of the obligation as represents the principal amount of an "excluded obligation".

It is our opinion that a reduction of the eligible capital expenditure of a taxpayer pursuant to paragraph 14(3)(b) of the Act is a result contemplated by subparagraph (a)(iii) of the definition of "excluded obligation" in subsection 80(1) of the Act.

As to the second part of your letter we offer the following comments.

The adjusted cost base ("ACB") of any property other than depreciable property is defined in paragraph (b) of that definition in section 54 of the Act, as being the cost to the taxpayer of that property.

In a situation where a partnership business is carried on by a sole proprietorship and the proprietor continues to use any property that was property of the partnership, the cost to the proprietor of that partnership property will be deemed to be an amount equal to the aggregate of subparagraphs 98(5)(b)(i), (i.1) and (ii) of the Act.

Therefore, it is our opinion that the cost of any property received by the proprietor as proceeds of disposition of the proprietor's interest in the partnership, as determined pursuant to paragraph 98(5)(b) of the Act, would be the ACB of that property to the proprietor.

Where an amount owing by the proprietor is subsequently forgiven by the creditor, and such amount is a "forgiven amount", that forgiven amount will be subject to the application of subsections 80(3)-(13) of the Act.

The foregoing comments are given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996 and are not binding on Revenue Canada, Taxation.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch