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, in light of comments contained in Income Tax Technical News No.5 dated July 28, 1995, our position concerning the timing of an addition to the ACB of an interest in a partnership under subparagraph 53(1)(e)(viii) in circumstances involving the application of subsection 66.4(6) remains as reflected in identical responses to question number 18 at the Institute of Chartered Accountants of Alberta meeting on May 18, 1994 and question number 4 at the Canadian Petroleum Tax Society meeting on June 2, 1994?

Position:

In calculating the ACB to a taxpayer of an interest in a partnership at a particular time, only amounts deemed under subsection 66.4(6) of the Act in respect of fiscal periods of the partnership ending before that particular time would be included under subparagraph 53(1)(e)(viii) of the Act. In other words, amounts referred to in subparagraph 53(1)(e)(viii) of the Act will not increase the ACB of the partner's interest in the partnership until after the end of the relevant fiscal period of the partnership.

However, the view expressed in the above Roundtable questions would not change provided a fiscal period of the partnership ends after the distribution of partnership assets to the partner and prior to the partnership interest being disposed of by the partner on dissolution of the partnership.

Reasons:

Review of the relevant provisions of the Act, including paragraph 96(2.2)(b.1), as well as the discussion contained and revised position taken in Income Tax Technical News No. 5 and 9.

	                                    	964202
XXXXXXXXXX	                                    A.A. Cameron

Attention: XXXXXXXXXX

September 8, 1997

Dear Sirs:

Re: Adjusted Cost Base ("ACB") of a Partnership Interest

We are writing in response to your letter concerning the timing of an addition to the ACB to a taxpayer, within the meaning assigned in section 54 of the Income Tax Act (the "Act"), of an interest in a partnership under subparagraph 53(1)(e)(viii) of the Act in circumstances involving the application of subsection 66.4(6) thereof.

In particular, you queried whether the responses provided to identical questions at two Revenue Canada Roundtables (question number 18 at the Institute of Chartered Accountants of Alberta meeting on May 18, 1994 and question number 4 at the Canadian Petroleum Tax Society meeting on June 2, 1994) continue to reflect the views of Revenue Canada with regard to this issue. You have also indicated that your query arises in light of comments concerning the timing of certain adjustments to the ACB of a partnership interest contained in Income Tax Technical News ("ITTN") No. 5 dated July 28, 1995 and issued by Revenue Canada.

Background

The hypothetical situation relevant to the above questions was one where all of the partners to a partnership, the assets of which were composed primarily of Canadian resource properties and related tangibles, enter into an agreement whereby all of the partnership's assets would be distributed in a manner such that each partner receives a pro-rata undivided interest in those assets immediately prior to the dissolution of the partnership. In addition, the circumstances were such that the partners would be considered to dispose of their respective partnership interests upon dissolution of the partnership. The fair market value of the assets of the partnership were also stated, generally, to be less than the cost amount thereof.

The above questions asked, in part, whether, if an election under subsection 98(3) of the Act was not made, each partner would obtain the increase in the ACB of its partnership interest pursuant to subparagraph 53(1)(e)(viii) and subsection 66.4(6) of the Act before the partner is considered to have disposed of his partnership interest?

The response provided by the Department to this particular question was that:

Where an amount in respect of proceeds of disposition of the type referred to in clause 66.4(5)(b)(v)(A) of the Act (now paragraph (a) of the description of F in the definition "cumulative Canadian oil and gas property expense" contained in subsection 66.4(5) of the Act) has arisen to a partnership by virtue of subsection 98(2) at a time prior to the partners disposing of their partnership interest upon dissolution, it is our view that the provisions of subsection 66.4(6) of the Act would be applicable at that time such that a partner's share of that amount would be added in computing the adjusted cost base of that partner's interest in the partnership prior to its disposition upon dissolution.

As you have noted, the Department subsequently released ITTN No. 5 dated July 28, 1995 which indicated that, for fiscal periods of a partnership ending after that date, adjustments to the ACB of a partnership interest in respect of the income or loss of the partnership were to be made in accordance with subparagraph 53(1)(e)(i) or 53(2)(c)(i), respectively, of the Act. As such, in calculating the ACB of a taxpayer's partnership interest at the end of a fiscal period of the partnership, only the partnership's income or loss for fiscal periods ending before that time would be taken into account. Therefore, the taxpayer's share of the partnership's income or loss for that fiscal period would not be an adjustment in calculating the ACB of the taxpayer's partnership interest until after the end of that fiscal period.

Our Comments

With regard to the issue at hand, in light of the discussion contained and position taken in ITTN No. 5, we are of the opinion that in calculating the ACB to a taxpayer of an interest in a partnership at a particular time, only amounts deemed under subsection 66.4(6) of the Act in respect of fiscal periods of the partnership ending before that particular time would be included under subparagraph 53(1)(e)(viii) of the Act. In other words, amounts referred to in subparagraph 53(1)(e)(viii) of the Act will not increase the ACB of the partner's interest in the partnership until after the end of the relevant fiscal period of the partnership. Note that this position is consistent with the provisions of paragraph 96(2.2)(b.1) of the Act which are relevant to the determination of the "at-risk amount" of a taxpayer who is a limited partner of a partnership.

However, notwithstanding the comments contained in the preceding paragraph, the view expressed in the above Roundtable questions would not change provided a fiscal period of the partnership ends after the distribution of partnership assets to the partner and prior to the partnership interest being disposed of by the partner on dissolution of the partnership.

At the annual conference of the Canadian Tax Foundation held on November 27, 1996, the Department clarified the above position from ITTN No. 5. In particular, it was indicated (as noted in ITTN No. 9 dated February 10, 1997 a copy of which is enclosed for your information) as follows:

In circumstances where there is a possibility of double taxation, we are prepared, in the context of a ruling request, to apply the law in a manner such that a taxpayer is not taxed twice on the same amount. For example, if a partner dies or leaves the partnership, we may consider certain adjustments in situations where double taxation arises.

The Department will similarly consider advance income tax ruling requests in circumstances involving the application of the above position concerning subparagraph 53(1)(e)(viii) of the Act where there is a possibility of double taxation.

The above comments represent our general views with respect to the subject matter of your letter and are given in accordance with paragraph 22 of Information Circular

70-6R3 dated December 30, 1996. Accordingly, the above comments do not constitute an advance income tax ruling and are not binding on Revenue Canada.

Yours truly,

for Director
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch

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