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 there is necessarily a disposition upon the partition of a milk quota following the dissolution of a partnership
Position:
provided that a milk quota can be held jointly, no
Reasons:
provided that the FMV tests are met, either 248(20)(a) and (b) or (21) will apply so no disposition occurs
April 27, 1998
Halifax Tax Services Office HEADQUARTERS
Audit Services A. Humenuk
Attention: Kevin McGuigan
980456
Partition of Milk Quota
This is in response to your memorandum of February 17, 1998, concerning the dissolution of a partnership and the partition of an undivided interest in a milk quota between the partners.
Where subsection 98(3) of the Income Tax Act (the "Act") applies to the dissolution of a partnership, each member of that partnership receives an undivided interest in each of the partnership assets. You ask whether the former partners of a farm partnership are required to report a disposition when one of the undivided assets received as a result of such a dissolution is a milk quota which is then split with the consent of the appropriate governing authority.
Subsections 248(20) and 248(21) of the Act provide rules with respect to property which is the subject of a partition. Although subsection 248(21) provides an exception to the application of subsection 248(20) of the Act, the application of subsection 248(20) does not always result in a disposition of property.
Assuming that the property is “owned jointly” (an assumption we have not verified in the particulars of your case), the partition of a non-real estate property, including a milk quota, can be accomplished under either subsection 248(20) or (21) of the Act without causing a disposition, provided the fair market value tests are satisfied. The effect of paragraphs 248(20)(a) and (b) of the Act is that a person who had an interest in a particular property is deemed not to have disposed of, or not to have acquired, any property as a result of the partition, provided that the fair market value of that person’s interest in that property before the partition is the same as it is after the partition. The deemed acquisitions and dispositions described in paragraphs 248(20)(c) and (d) of the Act apply to any increase or decrease in the fair market value of a person’s interest in a particular property as a result of the partition. Accordingly, provided that the fair market value of the person’s interest in the milk quota is the same both before and after the partition, the application of subsection 248(20) of the Act does not result in a disposition so that there is no need to consider whether the exception in subsection 248(21) applies.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department’s mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version or they may request a copy severed using the Privacy Act criteria which does not remove client identity. Requests for this latter version should be made by you to Jackie Page at (613) 957-0682. The severed copy will be sent to you for delivery to the client.
P. Spice
Section Chief
Business, Property and Employment Section III
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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