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: Is a partnership a taxpayer for the purposes of section 84.1
Position: yes
Reasons: it involves the computation of income under division B of Part 1 of the Act
XXXXXXXXXX 980169
F. Francis
Attention: XXXXXXXXXX
November 4, 1998
Dear Sirs:
Re: Technical Interpretation Request - Non-arm's-length sale of shares under subsection 84.1(1)of the Income Tax Act (the "Act")
This is in reply to your letter of January 22, 1998, wherein you requested our views as to whether the word "taxpayer", as it is used in subsection 84.1(1) of the Act, includes a partnership.
A "taxpayer" is defined in subsection 248(1) of the Act, to include any person whether or not liable to pay tax. As noted in the response to question 28 at the 1990 Canadian Tax Foundation Round Table, it is the Department's practice, relying on the provisions of subsection 96(1) of the Act, to consider a partnership to be a person when the computation of income at the partnership level under Division B of Part I of the Act is involved.
Where the provisions of subsection 84.1(1) apply, there may be a reduction of the paid-up capital of the transferee corporation and the transferee corporation may be deemed to have paid a dividend to the transferor taxpayer. While the deemed dividend is taxable immediately to the transferor taxpayer, the reduction in the paid-up capital of the shares of the transferee corporation has the effect of preserving the potential for deemed dividends on the redemption of those shares that was inherent in the shares transferred.
Therefore, paragraph 84.1(1)(b) of the Act will generally affect the computation of income of the transferor taxpayer under Division B of Part I of the Act. Consequently, it is our view that, generally, where a partnership transfers shares and the conditions in section 84.1 are met, the partnership will be considered to be a person and a taxpayer for purposes of section 84.1 of the Act.
We trust our comments will be of assistance to you.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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