10 February 1998 External T.I. 9726105 - CONVERSION PARTNERSHIP INTEREST - SAME PARTNERSHIP

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:

1. Would the exchange of classes of interests in a partnership result in a disposition of the exchanged partnership interest?

2. If so, could 97(2) be used to defer any gain by rolling the partnership interest back to the same partnership in exchange for the other class of partnership interest?

Position:

1. No response was given to their questions, since it appeared to be a factual situation involving a partnership and an estate freeze. We cautioned them on the possible application of section 103 of the Act.

Reasons:

In the past we expressed section 103 concerns in a number of proposed estate freezes using partnerships. We need to know all the facts before responses can be given.

XXXXXXXXXX 972610

February 10, 1998

Dear Sirs:

Re: Technical Interpretation Request
Exchange of Partnership Interests Within the Same Partnership

This is in reply to your letter of September 29, 1997, wherein you requested our response to the following queries as they relate to a father/children partnership:

1. If the father exchanged his Class A partnership interest (terms and conditions as outlined in your letter) for a Class B partnership interest in the same general partnership, would he be considered to have disposed of his Class A partnership interest? The children own the Class B interests, which were acquired for nominal consideration.

2. If the answer to the first query is yes, could the father elect under subsection 97(2) of the Act to transfer his Class A partnership interest to the partnership and defer any accrued gain in respect of his partnership interest?

Your questions appear to relate to a specific factual situation. As noted in Information Circular 70-6R3, we do not provide opinions with respect to proposed factual transactions other than in reply to an advance income tax ruling request. We would be pleased to consider your application for an advance ruling, should you decide to proceed in that manner. In the meantime, we will offer the following general comments, which we hope will be of assistance to you.

In response to question 13 at the Revenue Canada Round Table at the 1992 Canadian Tax Foundation Conference, we stated, in part, that whether or not a partnership is used for estate-freezing purposes, the allocation of income within a partnership should recognize the capital contributions of the partners, as well as the non-monetary contributions of each partner. Otherwise, subsection 103(1) or (1.1) of the Act may apply.

In our view, your situation involves a partnership estate freeze arrangement to which section 103 of the Act would have application.

Yours truly,

Manager
Partnerships Section
Resources, Partnerships and Trusts Division
Income Tax Rulings and Interpretations Directorate
Policy and Legislation Branch
							- 2 -