14 October 1997 External T.I. 9724355 - INTERPRETATION OF SUBSECTION 98.1(2) OF THE ACT

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.

Principales Questions:

do the provisions of subsection 98.1(2) apply where a number of US limited partnerships merge to form a single limited partnership which assumes and agrees to satisfy all of the rights of the partners of the former limited partnerships without a distribution of any assets of the partnerships?

Position Adoptée:

The provisions of subsection 98.1(2) of the Act will not apply unless at least one partner of the former partnership had, at the time when the partnership has ceased to exist, a residual interest as defined in paragraph 98.1(1)(a) of the Act .

Raisons POUR POSITION ADOPTÉE:

wording of 98.1(2) of the Act

			5-972435
XXXXXXXXXX	J. Desparois, M.Fisc.

Attention: XXXXXXXXXX

October 14, 1997

Dear Sirs/Madams:

Re: Interpretation of subsection 98.1(2) of the Income Tax Act

We are replying to your facsimile of September 11, 1997 wherein you requested a technical interpretation on subsection 98.1(2) of the Income Tax Act (the "Act").

As explained in Information Circular 70-6R3, it is not the Department's practice to comment on proposed transactions other than in the form of advance income tax rulings. Taxpayers seriously contemplating proposed transactions are best advised to seek a formal ruling, submitting a complete statement of facts and issues as well as copies of all relevant documents. Should your situation involve completed transactions, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. We are therefore not in a position to give you a definite response as to the application of the provisions of the Act. However, we can offer you the following general comments which may be of assistance although, in certain circumstances, they may not be appropriate to your specific situation.

Subsection 98.1(2) of the Act applies where a partnership has ceased to exist at a time when a former partner has a residual interest in that partnership and where the members of another partnership have agreed to satisfy all or part of the former partner's rights. Where those two conditions are met, the second partnership is deemed for purposes of paragraph 98.1(1)(a) of the Act to be a continuation of the original partnership. Thus, it is our opinion that the provisions of subsection 98.1(2) of the Act apply only if the provisions of subsection 98.1(1) of the Act are applicable to at least one partner of the partnership which has ceased to exist. It is also our view that the provisions of subsection 98.1(2) of the Act will not apply unless at least one partner of the former partnership had, at the time when the partnership has ceased to exist, a residual interest as defined in paragraph 98.1(1)(a) of the Act .

These comments represent our opinion of the law as it applies generally. As indicated in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996, this opinion is not a ruling and accordingly, is not binding on the Department.

Yours truly,

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