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:
Dissolution of a general partnership under subsection 98(3) of the Act and thereafter partitioning the undivided interest in the distributed assets to the former partners.
Position:
Rulings given regarding the application of subsections 98(3) and 248(20), subject to caveats that fair market value of the respective proportions of the partners’ interests before and after the partitioning of the particular property be met, as provided in subsection 248(20).
Reasons:
The particular provisions will permit the dissolution and partitioning, respectively,
XXXXXXXXXX 2000-005852
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: Request for Advance Income Tax Ruling
XXXXXXXXXX
This is in reply to your letter dated XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the XXXXXXXXXX in respect of the proposed transactions described herein. We also acknowledge your letters of XXXXXXXXXX in respect of your request.
Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada) R.S.C. 1985 (5th Supp.), c.1, as amended, (the “Act”), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition.
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
DEFINITIONS
“Aco” means XXXXXXXXXX.
“Bco” means XXXXXXXXXX.
“Cco” means XXXXXXXXXX.
“Dco” means XXXXXXXXXX.
“Eco” means XXXXXXXXXX.
“Fco” means XXXXXXXXXX.
“Gco” means XXXXXXXXXX.
“Hco” means XXXXXXXXXX.
“Ico” means XXXXXXXXXX.
Mr. “J” means XXXXXXXXXX.
Mr. “K” means XXXXXXXXXX.
Mr. “L” means XXXXXXXXXX.
Mr. “M” means XXXXXXXXXX.
Mr. “N” means XXXXXXXXXX.
“Oco” means XXXXXXXXXX.
“Pco” means XXXXXXXXXX.
The “Partnership” means XXXXXXXXXX.
The “Trust” means the XXXXXXXXXX.
RELEVANT FACTS
1. The Partnership is a limited partnership formed under the laws of the XXXXXXXXXX pursuant to a Limited Partnership Agreement (“Partnership Agreement”) dated XXXXXXXXXX and is registered as an extra-provincial limited partnership in XXXXXXXXXX. The Partnership is incorrectly referred to in the Partnership Agreement. However, this error has not been rectified since it is proposed that the Partnership will be dissolved, as described below.
2. Aco is a corporation incorporated under the laws of XXXXXXXXXX Aco is a resident of Canada, a private corporation and a taxable Canadian corporation for the purposes of the Act. Aco’s taxation year ends on XXXXXXXXXX.
3. Bco is a corporation incorporated under the laws of Canada. Bco is a resident of Canada, a private corporation and a taxable Canadian corporation for the purposes of the Act. Bco files its tax returns at the XXXXXXXXXX. Bco’s taxation year ends on XXXXXXXXXX.
4. Cco is a corporation incorporated under the laws of Canada. Cco is a resident of Canada, a private corporation and a taxable Canadian corporation for the purposes of the Act. Cco files its tax returns at the XXXXXXXXXX. Cco’s taxation year ends on XXXXXXXXXX.
5. Dco is a corporation incorporated under the laws of XXXXXXXXXX. Dco is a resident of Canada, a private corporation and a taxable Canadian corporation for the purposes of the Act. Dco’s taxation year ends on XXXXXXXXXX.
6. Eco is a corporation incorporated under the laws of XXXXXXXXXX. Eco is a resident of Canada, a private corporation and a taxable Canadian corporation for the purposes of the Act. Eco’s taxation year ends on XXXXXXXXXX.
7. Fco is a corporation incorporated under the laws of XXXXXXXXXX. Fco is a resident of Canada, a private corporation and a taxable Canadian corporation for the purposes of the Act. Fco’s taxation year ends on XXXXXXXXXX.
8. Gco is a corporation incorporated under the laws of XXXXXXXXXX. Gco is a resident of Canada, a private corporation and a taxable Canadian corporation for the purposes of the Act. Gco’s taxation year ends on XXXXXXXXXX.
9. Hco is a corporation incorporated under the laws of XXXXXXXXXX. Hco is a resident of Canada, a private corporation and a taxable Canadian corporation for the purposes of the Act. Hco’s taxation year ends on XXXXXXXXXX.
10. Ico is a corporation incorporated under the laws of XXXXXXXXXX. Ico is a resident of Canada, a private corporation and a taxable Canadian corporation for the purposes of the Act. Ico’s taxation year ends on XXXXXXXXXX.
11. Aco is the general partner of the Partnership (the “General Partner”). The General Partner’s interest in the profits and losses and the capital of the Partnership, expressed as a percentage, is XXXXXXXXXX%.
12. Bco, Cco, Dco, Eco, Fco, Gco, Hco and Ico are limited partners (the “Limited Partners”) of the Partnership. After deducting the General Partner’s interest in the Partnership, each Limited Partner’s interest in the profits and losses and in the capital of the Partnership is as follows:
Limited Partner
Partnership Interest
Bco (as nominee)
XXXXXXXXXX%
Cco
XXXXXXXXXX%
Dco
XXXXXXXXXX%
Eco
XXXXXXXXXX%
Fco
XXXXXXXXXX%
Gco
XXXXXXXXXX%
Hco
XXXXXXXXXX%
Ico
XXXXXXXXXX%
TOTAL
100%
13. Bco holds legal title to its partnership interest as nominee for the following beneficial owners:
Beneficial Owner
Beneficial Interest
Taxation Year End
Mr. J
XXXXXXXXXX%
XXXXXXXXXX
Mr. K
XXXXXXXXXX%
XXXXXXXXXX
Mr. L
XXXXXXXXXX%
XXXXXXXXXX
Mr. M
XXXXXXXXXX%
XXXXXXXXXX
Mr. N
XXXXXXXXXX%
XXXXXXXXXX
Oco
XXXXXXXXXX%
XXXXXXXXXX
Pco
XXXXXXXXXX%
XXXXXXXXXX
Total
100.00%
14. For ease of explanation and understanding, the terms “General Partner” and “Limited Partner(s)” collectively are hereinafter referred to as the “Partners”.
15. The only asset of the Partnership is an interest in the Trust, represented by XXXXXXXXXX units (the “Units”) thereof, such that each Partner holds an undivided interest in the Partnership’s interest in the Trust. The Partnership’s interest in the Trust is hereinafter referred to as the “Trust Interest”.
16. The Trust declaration of trust states that:
(a) a person who is entitled to a fraction of a Unit (“Fractional Unit”) is not entitled to receive a certificate for that Fractional Unit;
(b) a person who holds Fractional Units shall not be entitled to notice of or to attend or to vote at meetings of unitholders, except to the extent that the Fractional Units represent in the aggregate one or more whole Units; and
(c) subject to (a) and (b), Fractional Units have the same rights, restrictions, conditions and limitations attaching to whole Units in the proportion that they bear to a whole Unit.
PROPOSED TRANSACTIONS
17. The Partnership will be dissolved pursuant to an election unanimously approved by the Limited Partners. Such dissolution will be effected in the manner contemplated by subsection 98(3) of the Act.
18. Pursuant to subsection 98(3) of the Act, the Partners will jointly elect in respect of their partnership interests, in prescribed form and within the time referred to in subsection 96(4) of the Act, that:
(a) the proceeds of disposition to each of the Partners of its Partnership interest;
(b) the cost to each of the Partners of its undivided interest in the Trust Interest, and
(c) the Partnership’s proceeds of disposition of its Trust Interest;
be determined in accordance with the rules in subsection 98(3) of the Act.
19. The Trust Interest in which each of the Partners has an undivided interest following the dissolution of the Partnership will be partitioned.
20. The Partners will request the relevant transfer agent to cancel the certificates for Units registered in the Partnership’s name and issue certificates for Units in accordance with proportionate shares of each of the Partners in the Partnership prior to its dissolution, such that each such Partner will receive a certificate for Units representing the respective Partner’s proportionate share of the partitioned Trust Interest.
PURPOSE OF PROPOSED TRANSACTIONS
21. The Limited Partners shared common business interests at the time the Partnership acquired the Units. Because the Limited Partners no longer share common business interests, the proposed transactions are intended to sever the joint ownership of the Units in order to enable the Limited Partners to independently manage their investments.
22. To the best of your knowledge and that of the Partnership, Aco, Bco, Cco, Dco, Eco, Fco, Gco, Hco and Ico, none of the issues involved in this ruling is:
(a) relevant to a tax return previously filed by Aco, Bco, Cco, Dco, Eco, Fco, Gco, Hco and Ico or a related person;
(b) under consideration by a tax services office or taxation centre in connection with a previously filed tax return of Aco, Bco, Cco, Dco, Eco, Fco, Gco, Hco and Ico or a related person;
(c) under objection by Aco, Bco, Cco, Dco, Eco, Fco, Gco, Hco and Ico or a related person;
(d) the subject of a ruling previously issued by this Directorate to the Partnership, Aco, Bco, Cco, Dco, Eco, Fco, Gco, Hco and Ico or a related person; or
(e) before the courts or if a judgment has been issued, the time for an appeal to a higher court has not expired.
RULINGS GIVEN
Provided that the statement of facts, proposed transactions and the purposes thereof, all as described above, constitutes an accurate and complete disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that all of the proposed transactions are carried out in the manner described above, that the Partnership is a partnership at law and that the partitioning of the Trust Interest is legally effective, we provide the following rulings:
A. The provisions of subsection 98(3) of the Act will apply to the dissolution as described in paragraphs 17 and 18 above to, inter alia, determine the amount of each Partner’s proceeds of disposition of its interest in the Partnership, the cost to each Partner of its undivided interest in the Trust Interest and the Partnership’s proceeds of disposition of the Trust Interest.
B. Provided that each Partner who had a joint interest in the Trust Interest before the partitioning holds the same proportion of its interest, that the fair market value of the Partner’s interest in the Trust Interest immediately after the partitioning is of the fair market value of the Partner’s interest in the Trust Interest immediately before the partitioning, subsection 248(20) of the Act will apply to deem each Partner not to have disposed of any part of its interest in the Trust Interest or to have acquired any interest in the Trust Interest at the time that the Trust Interest is partitioned.
These rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R4 issued January 29, 2001 by the Canada Customs and Revenue Agency, and are binding provided that the transactions comprising the proposed dissolution of the Partnership and the partitioning of the Trust Interest are completed by XXXXXXXXXX. These rulings are based on the Act in its present form and do not take into account the effect of any proposed amendments thereto. Except as expressly stated, our rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions. In particular, nothing in this letter should be interpreted as confirming, either expressly or implicitly:
(i) any GST implications of any of the proposed transactions described herein;
(ii) the cost or fair market value of any property of the Partnership or the Partners; and
(iii) any other tax consequences of the proposed transactions or of related transactions or events that are not described herein.
Yours truly,
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 2001
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© Sa Majesté la Reine du Chef du Canada, 2001
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