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.
Principal Issues: In a scenario involving a partial disposition of a partnership interest, will the partner's share of the income of the partnership for the fiscal period be added to the ACB of the remaining partnership interest?
Position: Yes.
Reasons: As the partner still has a partnership interest after a partial disposition, the partner's share of the income of the partnership for the fiscal period will be added to the ACB of the remaining partnership interest pursuant to subparagraph 53(1)(e)(i).
XXXXXXXXXX
2013-049157
October 1, 2013
Dear XXXXXXXXXX:
Re: Partial disposition of partnership interest
We are writing in response to your email sent on June 3, 2013 in which you inquire about the calculation of the adjusted cost base (ACB) of a partnership interest in a situation where the partner disposes of a portion of the partnership interest during the year. Specifically, you are concerned that the partner would not get an ACB adjustment for the entire amount of the income allocated to that partner for the fiscal period because of the partial disposition.
Written confirmation of the tax consequences that apply to a particular fact situation is given by this Directorate only in the context of an advanced income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other Canada Revenue Agency publications can be accessed on the CRA website at www.cra-arc.gc.ca. However, we are prepared to provide the following general comments, which may be of assistance.
Our Comments
In our view, all of the units that a partner holds in a partnership constitute a single property, i.e. the partner's interest in the partnership. Consequently, when a partner disposes of, for example, 40% of its partnership units, this constitutes a partial disposition of its partnership interest. In order to calculate the gain or loss resulting from this partial disposition, reference must be made to subsection 43(1) of the Income Tax Act which establishes the ACB of the part of the partnership interest that constitutes a disposition. After the partial disposition, pursuant to paragraph 53(2)(d) of the Act, the ACB of the partnership interest will be reduced by the amount of ACB apportioned to the part of the partnership interest that was disposed of thus reflecting the ACB of the remaining partnership interest.
In computing the ACB of a partnership interest at a particular time, subparagraph 53(1)(e)(i) of the Act provides that the ACB is increased by the partner's share of the income of the partnership for each fiscal period ending before that time. Where the partial disposition occurs during the fiscal period of the partnership and thus the ACB adjustment for that fiscal period is not reflected in the ACB of the partnership interest for purposes of computing the gain or loss on the partial disposition, it is our view that the ACB of the remaining partnership interest will be increased by that ACB adjustment. Accordingly, the partner would have an ACB adjustment for the entire amount of the income allocated to that partner for the fiscal period despite the partial disposition.
We trust the above comments will be of assistance.
Yours truly,
Chrys Tzortzis, CPA, CA
For Director
Partnerships Section
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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