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.
Dear Sirs:
Re: Subparagraph 40(2)(e)(i) of the Income Tax Act (the "Act")
This is in reply to your letter of April 9, 1990 in which you asked us two questions about the above-mentioned provision of the Act. We apologise for the delay in replying your letter. To illustrate your questions, you have provided us with the following hypothetical facts:
- 1. Mr. S is the controlling shareholder of L Ltd.
- 2. L Ltd. owns non-depreciable capital property (the "Property") in which its adjust cost base exceeds its fair market value.
- 3. L Ltd. sells the Property to a partnership (the "Partnership") comprised of the following partners and their respective interests:
Mr. S - 60%
Mr. S's daughter - 40%
- 4. The Partnership will pay to L Ltd. consideration equal to the Property's fair market value in exchange for the Property.
Your Question
You have asked for
- 1) a technical interpretation with respect to the word "person" contained in the above-mentioned subparagraph of the Act, and
- 2) confirmation that the above mentioned subparagraph of the Act will not apply to the above hypothetical facts.
Our Comments
Subsection 248(1) of the Act defines "person" as follow:
"person", or any word or expression descriptive of a person, includes any body corporate and politic, and the heirs, executors, administrators or other legal representatives of such person, according to the law of that part of Canada to which the context extends.
Therefore the meaning of "person" includes individuals, corporations, and the heirs, executors, administrators or other legal representatives of a person. As outlined in paragraph 1 of the Interpretation Bulletin IT-90, a partnership is not a person, nor is it deemed to be within the meaning of the Act. It is our opinion that this would be the Department's view with respect to subparagraph 40(2)(e)(i) of the Act.
However, in our opinion, subsections 97(3) and 97(3.1) of the Act would probably applicable to this hypothetical situation. It appears that under subsection 97(3.1) of the Act, L Ltd. would be deemed to be a majority interest partner of the Partnership, and accordingly, the apparent capital loss of L Ltd. would be denied pursuant to subsection 97(3) of the Act.
We hope the above comments will be of assistance.
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© Her Majesty the Queen in Right of Canada, 1990
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© Sa Majesté la Reine du Chef du Canada, 1990
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