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.
DATE: February 7, 1986
To- Current Amendments
FROM- Reorganizations and Non-Residence Division Specialty Rulings Directorate
ATTENTION C.D. McDonald, Esq. Director
RE: Amalgamations and Subsection 100(2)
We have been asked to rule that subsection 100(2) does not apply on an amalgamation of a corporation which is a partner in a Canadian partnership.
The corporate partner is a 50% partner in a Canadian partnership which carries on an oil and gas business. Several years ago, each partner transferred resource properties and related depreciable properties to the partnership and elected under subsection 97(2) in respect to the transfer. The partnership borrowed monies on the security of the properties and paid the monies to the partners with the result that the ACB of each partner's interest became negative. The partners used the money to pay the purchase price of the resource properties.
The corporate partner proposes to merge with a sister corporation in a manner which qualifies as an amalgamation within the meaning of subsection 87(1).
Immediately before the amalgamation, the amount determined under subsection 100(2) with respect to the partnership interest will be in excess of XXXX.
We do not believe that subsection 100(2) will apply on the amalgamation. Under corporate law, the partnership interest will not be disposed of on the amalgamation and there is nothing in the Act which will deem a disposition.
In addition, subsection 100(2) will not apply on the disposition of the partnership interest by Amalco since Amalco will not be required to deduct or add amounts deducted or added by the predecessor in computing its ACB. A provision in subsection 87(2) deeming Amalco to be a continuation of each predecessor is required to accomplish this result.
We could take the position that the negative amount will be taxed under paragraph 40(1)(a) on an actual disposition of the partnership interest by Amalco. If paragraph 87(2)(e) deems the cost of the partnership interest to Amalco to be the negative amount which was the ACB to the predecessor, such negative amount will be included in the gain computed under paragraph 40(1)(a) as this paragraph refers to the ACB immediately before the disposition.
This approach renders subsection 100(2) redundant and is in conflict within the position taken in IT 268 R2. For this reason, we do not believe that we can maintain this position.
We are bringing this matter to your attention since the other partner's interest is also a negative XXXX. Before issuing any ruling, we will, of course, seek confirmation of our interpretation from the Department of Justice.
Director Reorganizations & Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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