What the "Archived Content" notice means for interpretation bulletins

NO: IT-413R

DATE: July 7,1989

SUBJECT: INCOME TAX ACT
Election by Members of a Partnership under subsection 97(2)

REFERENCE: Subsections 96(3) and 97(2) (also subsections 96(4), (5), (5.1) and (6) and paragraph 102(b)).

Application

This bulletin cancels and replaces IT-413 dated May 15, 1978. Current revisions are indicated by vertical lines.

Summary

Pursuant to subsection 97(2) a taxpayer may dispose of certain property to a partnership on a rollover basis provided that a joint election is executed by the taxpayer and all the other members of the partnership and that the other requirements of that subsection are satisfied. To be valid, such an election on behalf of the members of a partnership must comply with the rules in subsection 96(3). This bulletin explains the implications of subsection 96(3) to a subsection 97(2) election where the property is disposed of by a Canadian partnership or where a member of the Canadian partnership that acquires the property is itself a Canadian partnership.

Discussion and interpretation

1. Paragraph 102(b) clarifies that the rules in subdivision j (sections 96 to 103) apply to a partnership which is a member of another partnership. Although paragraph 102(b) applies after February 25, 1986 its enactment merely recognizes the Department's previous position in respect of subdivision j and does not involve a change in that position.

2. Paragraph 96(3)(a) provides that where a person who is a member of a partnership has made an election under subsection 97(2), the election is not valid unless it was made or executed on behalf of that person and each other person who was a member of the partnership and that person had authority to act for the partnership. Where a partnership disposes of property which is the subject of an election under subsection 97(2), the manner in which the requirements of paragraph 96(3)(a) apply to the part of the joint election to be made on behalf of the members of the disposing partnership is discussed in 3 below. Where a partnership is a member of another partnership which acquires property that is the subject of an election under subsection 97(2), the manner in which the requirements of paragraph 96(3)(a) apply to the part of the joint election to be made on behalf of the members of the acquiring partnership is discussed in 4 below.

3. Where the "taxpayer" referred to in subsection 97(2) that disposes of property to a partnership is itself a partnership (the first partnership), that part of the joint election required by subsection 97(2) to be made by the "taxpayer" must be made or executed by a member of that first partnership on behalf of all members of that first partnership, including the member making or executing the election and the member who makes or executes the election must have authority to act on behalf of the members of that partnership.

4. Generally, that part of the joint election in respect of all other members of the partnership that is acquiring the property must be made by a member of that partnership on behalf of that member and of each other person who was a member of the partnership and that member must have the authority to act for the partnership. In a situation where a partnership (the first partnership) is a member of the partnership (the second partnership) that is acquiring the property, that part of the joint election required by subsection 97(2) to be made by "all other members of the partnership" must be made or executed by a member of the second partnership on behalf of each member of the first partnership and each member of the second partnership, including the member making or executing the election and the member making or executing the election must have the authority to act on behalf of the members of the first partnership as well as on behalf of the members of the second partnership.

5. Paragraph 96(3)(b) provides that unless the subsection 97(2) election is invalid by virtue of paragraph 96(3)(a), each other person who was a member of the partnership during the relevant fiscal period shall be deemed to have made or executed the election. Where one member of the partnership (the "second partnership") is itself a partnership (the "first partnership"), each person who is a member of the first partnership is also deemed to have made or executed the election in addition to each other person who is a member of the second partnership.

6. Subsection 96(4) provides that any election under subsection 97(2) shall be made on or before the day that is the earliest of the days on or before which any taxpayer making the election is required to file a return of income pursuant to section 150 for the taxpayer's taxation year in which the transaction to which the election relates occurred. The words "any taxpayer" in the foregoing sentence includes

(a) the taxpayer who disposed of the property to the partnership and, where it was a partnership that disposed of the property, each member of that partnership, and

(b) each member of the partnership that acquired the property and, where a member of the partnership that acquired the property was itself a partnership (the first partnership), each member of the first partnership as well.

7. Where it is a partnership that disposes of the property, the late filing penalty, if any, provided for in subsections 96(5), (5.1) and (6) is considered to be payable by that partnership on behalf of its members and the notice of assessment referred to in subsection 96(7) will be sent to the address of the partnership.

8. Elections for the purposes of subsection 97(2) must be made on prescribed Form T2059 and require the signatures of the transferor or an authorized signing officer and of the authorized officer of the transferee.