30 November 1998 Internal T.I. 9830237 - AT RISK RULES AND DEBT FORGIVENESS

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: Does subsection 80(15) election affect at risk rules.

Position: no. at risk rules applied first. Section 80(15) used to apply income inclusion to grind certain tax pools.

Reasons: analysis of law. see also finance tech notes

		November 30, 1998

	Winnipeg Tax Centre	Partnerships Section
S. Tevlin
	Attention:  Heather Kay
	                 Office Audit
		983023

Debt Forgiveness in a Partnership

We have reviewed the information provided in your memorandum dated November 18, 1998 and in this regard we offer the following comments.

A member of a limited partnership includes in income his share of the partnership income/loss pursuant to paragraphs 96(1)(f) and (g) of the Income Tax Act. That income/loss would include any amounts included in the calculation of the partnership’s income pursuant to subsection 80(13).

Pursuant to subsections 96(2.1) and 92(2.2) a limited partner would be limited to any deduction of partnership losses up to his “at risk amount.” In your example this would be the amount of $1,585.

Where a partnership has included in its income an amount pursuant to 80(13), paragraph 80(15)(a) allows a partner to deduct an amount in the calculation of his income. Such amount is limited by paragraph 80(15)(b) to the amount that would have been included in the partner’s income as a consequence of the application of subsections 96(1) and 80(13). For the purpose of subsection 80(15) the income resulting from subsection 80(13) is considered to arise from a separate source.

The partner is deemed by subparagraph 80(15)(c)(i) to have a debt obligation that has been settled and the amount so deducted pursuant to paragraph 80(15)(a) is treated as if it were a forgiven amount. The rules in section 80 will then apply to the partner in respect of that forgiven amount to reduce certain tax accounts of the partner. Any unapplied balance will result in income to the partner pursuant to subsection 80(13).

The technical notes for subsection 80(15) state, “(t)he purpose of subsection 80(15) is to provide for relief for members of a partnership, in recognition of the fact that a partner may well have undeducted loss carryforwards and resource expenditure pools that are attributable to activities of the partnership.”

It is therefore our opinion that the taxpayer in your example initially has a limited partnership loss of $(1,585) pursuant to paragraph 111(1)(e). He is then entitled to deduct pursuant to paragraph 20(1)(uu) an amount not exceeding $17,185 in the calculation of his income and must then apply the rules in section 80 of the Act to his “forgiven amount.”

We trust our comments will be of assistance to you.

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

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