CRA will assess a s. 92(5) gain at the Canadian partner level where there is a "rollover" transfer of a foreign affiliate subsidiary of the partnership which has received pre-acq dividends

Where a partnership (LP) received a dividend from Forco out of pre-acquisition surplus, and LP subsequently rolled its shares of Forco into a Canadian subsidiary (ULC) of LP under s. 85(2), the capital gain resulting under s. 92(5) to Canco from this disposition (based on its "share" of the previous pre-acquisition dividend) did not affect the operation of the s. 85(2) election at the LP level.

In commenting on this and similar situations at the 2014 IFA Conference, CRA indicated that there would be no administrative relief notwithstanding that the transaction triggering the s. 92(5) gain was a transaction intended to occur on a rollover basis.  This illustrates one of the pitfalls in utilizing partnerships at an intermediate level within a Canadian multinational structure.

Neal Armstrong.  Summaries of 7 May 2014 Memo 2012-0433731I7  and May 2014 IFA Roundtable, Q. 5, 2014-0526751C6 under s. 92(5).