14 October 1998 External T.I. 9823535 - PARTNERSHIP REORGANIZATION

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: will section 80 apply to a partnership reorganization

Position: no comments

Reasons: require all documents and purposes

XXXXXXXXXX 982353
S. Tevlin
Attention: XXXXXXXXXX

October 14, 1998

Dear Sir:

Re: Debt Owing by a Partnership

We are writing in response to your letter dated September 8, 1998 wherein you requested our opinion with respect to the following hypothetical situation.

In particular you describe the following series of transactions:

Company A is a Canadian resident corporation which owns a 25% interest in Partnership 1 and a 25% interest in Partnership 2.

Company B is a Canadian resident corporation which owns 75% limited partnership interest in Partnership 1 and a 75% limited partnership interest in Partnership 2.

Company A and Company B are not related to each other.

Partnership 1 and Partnership 2 are both Canadian partnerships as defined in subsection 102(1) of the Income Tax Act (Canada) (the “Act”).

Partnership 1 and Partnership 2 each owns assets with a fair market value (“FMV”) of $100 and a cost amount of $100 and has issued debt to a third party in the principal amount of $1,000.

Company C is a wholly-owned subsidiary of Company A. Company C would propose to acquire the assets and assume the debt of each of Partnership 1 and 2 as follows:

A) Company C purchases Company B’s interest in each of Partnership 1 and 2 for $1 each.

B) Company C would assume the $1,000 debt of each of Partnership 1 and 2 in exchange for a $1,000 partnership interest issued by each of Partnership 1 and 2 to Company C.

C) Company C would purchase Company A’s interest in each of Partnership 1 and 2 for $1 each.

D) Company C would continue the operation of Partnership 1 and 2 pursuant to subsection 98(5) of the Act.

The situation described in your letter appears to be in respect of an actual fact situation involving a particular taxpayer. Written confirmation of the tax implications inherent in proposed transactions are given by this Directorate only where the transactions are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R3. However, based on a fundamental understanding of the transactions and their purpose we are prepared to offer the following comments.

We are unable to offer any general comments regarding the application of section 80 to the above facts without a complete review of the purpose of the transactions, related documents and\or agreements which may indicate that section 80 or perhaps other provisions of the Act may be applicable; or certain provisions may have been avoided, which might make particular anti-avoidance provisions come into play.

The foregoing comments are given in accordance with the practice referred to in paragraph 22 of Information Circular 70-6R3 dated December 30, 1996 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