Section 100

Cases

Lane v. The Queen, 78 DTC 6535, [1978] CTC 795 (FCTD), aff'd 86 DTC 6568, [1986] 2 CTC (FCA)

disposition of partnership interest not disposition of underlying property

Under the partnership law of Alberta and other provinces, no partner has any right to take any portion of the partnership property and call it his. A disposition by a member of a partnership of his shares in the partnership accordingly is not a disposition of a share in particular assets held, as a group, by the particular members.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Capital Gain vs. Profit - Partnership Interests partnership interest distinct from partnership property 59
Tax Topics - Income Tax Act - Section 96 18

Subsection 100(1) - Disposition of interest in partnership

Cases

Canada v. Oxford Properties Group Inc., 2018 FCA 30

purpose is to ensure that latent recapture will be recognized on sale to tax exempt

When Oxford Properties was sold to an OMERS subsidiary, the purchaser first negotiated that Oxford would drop various properties down into “first tier” LPs on a s. 97(2) rollover basis, with those partnership interests subsequently being bumped under s. 88(1)(d) (which, in 2001, did not prohibit bumping interests in partnerships holding appreciated buildings). After the acquisition, those bumped costs were then pushed down onto the cost of interests in property-specific “second tier” LPs (which had been formed following the acquisition), by winding-up the upper-tier LPs under s. 98(3) and using the s. 98(3)(c) bump. After the three-year s. 69(11) period, some of the property-specific LPs were then sold to tax exempts.

Noël CJ reversed the findings of D’Arcy J that these transactions did not abuse ss. 97(2) and 100(1). Respecting s. 100(1), Noël CJ stated (at paras 101 and 102):

…[S]ubsection 100(1) brings into income 100% of the gain resulting from the sale of a partnership interest to an exempt entity insofar as it is attributable to depreciable property. … Parliament wanted tax to be paid on the latent recapture which would otherwise go unpaid on a subsequent sale of the depreciable property by the tax-exempt purchaser.

Given this, the inevitable conclusion is that the object, spirit and purpose of subsection 100(1) was frustrated by the result achieved in this case as the latent recapture in the depreciable property held by the second tier partnerships at the time of the sale of the partnership interests to the tax-exempt entities will forever go unpaid.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) using the s. 88(1)(d) bump on newly-formed rental property LPs to avoid indirect recapture income under s. 100(1) was abusive 925
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(d) s. 88(1)(d) bump is intended to permit the transfer of ACB that otherwise would be lost to another property that is taxed in the same way 349
Tax Topics - Income Tax Act - Section 98 - Subsection 98(3) - Paragraph 98(3)(c) s. 98(3)(c) bump is intended to avoid gain realization where there has been no economic gain 259
Tax Topics - Income Tax Act - Section 69 - Subsection 69(11) 3-year time limitation in s. 69(11) did not establish safe harbor for avoidance of recapture on sale after that period 366
Tax Topics - Income Tax Act - Section 97 - Subsection 97(2) object includes ultimate taxation of the deferred gain 224
Tax Topics - Income Tax Act - Section 171 - Subsection 171(1) GAAR question as to determining a provision’s object was subject to correctness standard 155
Tax Topics - Statutory Interpretation - Hansard, explanatory notes, etc. statement that amendment was for “clarification” was self-serving 199
Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 45(2) determination of whether amendment merely clarified requires review of pre-amendment state of law 135
Tax Topics - Income Tax Act - Section 245 - Subsection 245(2) consequential s. 245(2) adjustment must be scaled to the abuse 381

See Also

Oxford Properties Group Inc. v. The Queen, 2016 TCC 204, rev'd 2018 FCA 30

S. 100 operates only on outside basis gain

When Oxford Properties was sold to a Canadian pension fund (“OMERS”) subsidiary, the purchaser first negotiated that Oxford would drop various properties down into LPs on a s. 97(2) rollover basis, with those partnership interests subsequently being bumped under s. 88(1)(d). After the acquisition, those bumped costs were then pushed down onto the cost of interests in property-specific LPs (which had been formed following the acquisition), by winding-up the upper-tier LPs under s. 98(3) and using the s. 98(3)(c) bump. After the three-year s. 69(11) period, some of the property-specific LPs were then sold to tax exempts.

In finding that GAAR did not apply, and that there was no abuse of s. 100(1), D’Arcy J stated (at paras 174 and 216):

With respect to the portion of the capital gain determined under the Act that is attributable to an increase in the value of depreciable property, the subsection ensures that such gain is taxed at the same rate as that which would have applied to recaptured depreciation on a sale of the depreciable capital property itself to the tax-exempt entity. …

…[S]ubsection 100(1) looks at the capital gain otherwise determined under the Act and then determines which portion of the capital gain is taxable. The Respondent is, in effect, asking me to find that one of the purposes of subsection 100(1) is to base the capital gain not on the gain otherwise calculated under the Act, but rather on accrued gains (including recapture) of property held by the partnership. … If Parliament had intended such a result it would have drafted subsection 100(1) in a manner that required such a look-through, in other words, in a manner similar to new subparagraph 88(1)(d)(ii.1) of the bump rules.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) no abuse in using 88(1)(d) bump to avoid s. 100 after 3-year s. 69(11) period 537
Tax Topics - Income Tax Act - Section 248 - Subsection 248(10) subsequent sale part of series as it utilized the benefit of previous LP packaging transactions 371
Tax Topics - Income Tax Act - Section 97 - Subsection 97(2) purpose not to tax underlying recapture on subsequent LP unit sale 415
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(d) purpose: to push down ACB of shares of sub to qualifying non-depreciable property 474
Tax Topics - Statutory Interpretation - Interpretation Act - Subsection 45(2) subsequent amendment shed light on scope of previous version 99
Tax Topics - Income Tax Act - Section 69 - Subsection 69(11) Parliament provided safe harbour for sales after 3 years 196
Tax Topics - Income Tax Act - Section 98 - Subsection 98(3) - Paragraph 98(3)(c) purpose: to preserve high outside basis through push down 285

Administrative Policy

2 December 2014 CTF Roundtable, Q. 6

avoidance of s. 100 through partnership boot paydown

Does the formation of a partnership with only Canadian partners in order to meet the requirement of a "Canadian partnership" under subsection 97(2) followed by the admission of a non-resident as a partner soon after (e.g. the next day) jeopardize the rollover?

CRA indicated that the issues in a denied ruling request, entailing the transfer of a non-Canadian business into a partnership which a non-resident became a member, could be illustrated as follows: Corp A is a taxable Canadian corporation, which transfers the business, represented by depreciable property with a capital cost and FMV of $100,000 and a UCC of $50,000, on a s. 97(2) rollover basis to a newly-formed partnership between it and its wholly-owned Canadian subsidiary (holding 1 of the 100 initial units) in consideration for a $50,000 promissory note and 50,000 units. The next day, the non-resident becomes a partner by contributing $50,000 for 50,000 partnership units (49.95%), thereby diluting Corp A's interest to 50.04%, with the promissory note then being repaid. CRA stated:

As part of the series of transactions, there is a dilution on a percentage basis in favour of a non-resident but without any Canadian tax recognition of the latent income gain. The new anti-avoidance rules under subsections 100(1.4) and (1.5) do not yield taxation to Corp A on the admission of the non-resident as a partner because there is no dilution of its partnership interest on a fair market value basis (i.e. the FMV of Corp A's partnership interest is still $50,099). If instead there had been a direct disposition by Corp A to the non-resident of part (49.95%) of its partnership interest, amended subsection 100(1) would have resulted in a fully taxable gain to Corp A of $24,975, which amount is also equivalent to 49.95% of the latent recapture in the depreciable property of $50,000.

The CRA will challenge such an arrangement by applying the GAAR. In our view, the determination of a misuse or abuse of the Act must be made having regard to the 2012 amendments to subsection 100(1) that extend its application to acquisitions by non-residents and the addition of the anti-avoidance dilution provisions contained in new subsections 100(1.4) and (1.5).

See 2014 CTF Conference

.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) avoidance of s. 100 through partnership boot paydown 343

Articles

Paul Cormack, Janette Pantry, "Negative Partnership Interest ACB", Canadian Tax Highlights, Vol. 24, No. 8, August 2016, p. 2

S. 100 rules extend to negative ACB amounts

[T]he tax treatment of a general partner's negative ACB is not the same if the partnership interest is sold to a non-resident or tax-exempt entity. In that case, the taxpayer's taxable capital gain for a taxation year from the disposition of the interest is deemed to be the total capital gain—that is, the capital gain is 100 percent taxable and not just 50 percent taxable—except to the extent that the capital gain may reasonably be attributable to partnership capital property other than depreciable property (subsection 100(1)). Thus, any negative partnership interest ACB at the time of disposition may be taxed at a 100 percent inclusion rate, not at the usual 50 percent inclusion rate.

It is unclear whether these provisions intended this result. Neither Finance's explanatory notes on subsections 100(1) and 100(2) nor the CRA's publications address this specific issue or outcome.

Mitchell Sherman, Kenneth Saddington, "100 1 Damnations!", Corporate Finance, Volume XVIII, No. 3, 2012, p. 2126

Before turning to the 2012 amendments, they gave an overview of the anomalous character of the existing rule:

… First it does not actually require the partnership to have a latent income gain – a partnership which owns only depreciable property is subject to subsection 100(1) even if no capital cost allowance has been claimed. In this respect, it operates to convert "future" recapture into an increased taxable capital gain. Second, the application of subsection 100(1) is one-sided – it provides no depreciable step-up to the partnership in the hands of the purchaser. Third, although colloquially thought of as an anti-avoidance rule, it requires no anti-avoidance intention. The provision will apply even where the Tax Exempt covenants to own the income asset in perpetuity. Fourth, the application of subsection 100(1) does not give rise to income, but rather to an increased taxable capital gain (against which, for example, capital losses may be used). Fifth, the application of subsection 100(1) is based on the quantum of the capital gain inherent in the partnership interest. There is no necessary corollary between this amount and the underlying income gains; …

The Amendments … do nothing to address the inconsistent application of the provision noted above.

Turning to the series of transactions language in the amended version, they stated (at p. 2128):

… A taxpayer that disposes of a partnership interest to an entity other than a Prohibited Acquirer – a taxable Canadian corporation, for example – may be concerned that subsection 100(1) will ultimately apply to it if the corporation sells the interest to a Prohibited Acquirer within a relatively short time frame. Arguable, the corporation's independent decision to on-sell the partnership interest should negate any serious concern, but the brevity of any time gap is often difficult to overcome. The seller may, therefore, desire contractual protection in the form of covenants limiting the ability of the purchaser to sell the partnership interest to a Prohibited Acquirer for a certain period of time. Such covenants will certainly be commercially undesirable to potential purchasers of partnership interests.…

Subsection 100(1.1) - Acquisition by certain persons or partnerships

Administrative Policy

13 November 2013 External T.I. 2013-0482431E5 - Subsection 100(1) and trusts under RRSP

acquiring partnership with RRSP member

Partnership A disposes of its interest in Partnership B (holding only depreciable property) to Partnership C, whose members include RRSPs. Would s. 100(1.1) cause S. 100(1) to apply in determining a taxable capital gain from the disposition of the interest in Partnership B? CRA stated:

[S]ubject to the de minimis rule in subsection 100(1.2)…, subsection 100(1)… will apply… because of subparagraph 100(1.1)(c)(i)… to the extent that the partnership interest is held by persons exempt from tax under section 149…, including RRSP trusts exempt under paragraph 149(1)(r).

Articles

Jessica Fabbro, "Dispositions of Partnership Interests – Navigating the Amendments to Section 100 of the Income Tax Act", CCH Tax Topics, No. 2162, August 15, 2013, p. 1

Purpose of s. 100(1.1)(d) (p.2)

…[P]aragraph 100(1.1)(d) does not include a trust merely because it has a non-resident beneficiary. While the Department of Finance Explanatory Notes do not explain the reason for this, one can only assume that it is because accrued income gains on the assets of a partnership cannot be avoided by a non-resident through the use of a trust due to Part XII.2 tax. [fn no 13: Blanchet J. "Transactions Involving Interests in Partnerships", draft paper presented to the Canadian Tax Foundation's 63rd Tax Conference, 2012, at footnote 16.]

Breadth of beneficiary concept/automatic tainting if 10% stacked interest (pp. 2-3)

While the addition of paragraph 100(1.1)(d) is meant to prevent vendors from disposing indirectly of their partnership interests to tax-exempt entities and therefore avoiding subsection 100(1), paragraph 100(1.1)(d) is drafted such that it will include any trust that has a tax-exempt entity as a beneficiary. For example, a family trust in which one of the discretionary beneficiaries is a charity would be included under paragraph 100(1.1)(d), even if the trustees have never allocated any income to that beneficiary and have no intention of allocating income to that beneficiary. As noted above with respect to paragraph 100(1.1)(c), in the case of stacked trusts it may not matter whether any tax-exempt person has an ultimate interest in one of the trusts for the trust to be included under paragraph 100(1.1)(d). If the purchaser is a trust with a partnership as a beneficiary, for example, and another trust holds 10% or more of the fair market value of all the interests in the beneficiary partnership, then the purchaser trust will be included under paragraph 100(1.1)(d) and subsection 100(1) will apply to the vending partner, regardless of whether the second trust has any tax-exempt beneficiaries.4

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 100 - Subsection 100(1.3) 171

Subsection 100(1.3) - Exception — non-resident person

Articles

Jessica Fabbro, "Dispositions of Partnership Interests – Navigating the Amendments to Section 100 of the Income Tax Act", CCH Tax Topics, No. 2162, August 15, 2013, p. 1

Reason for rule (p. 3)

Subsection 100(1.3) applies where the purchaser of the partnership interest is a non-resident and partnership property is used, both immediately before and after the acquisition of the partnership interest, in carrying on business in Canada through a permanent establishment and that property represents 90% or more of the fair market value of all the assets of the partnership. It appears that this exemption was included because under Article XIII of Canada's income tax treaties, non-residents are taxed in the same manner as Canadian residents on income earned from the disposition of such assets…

Direct acquisition limitation (p.3)

[T]he exception in subsection 100(1.3) is limited to direct acquisitions by non-residents. This means that if the purchaser is a partnership with a non-resident partner, this exception will not be available regardless of whether the asset conditions in paragraphs 100(1.3)(a) and (b) are met. The reason for this discrepancy is unknown; it would have been easy to expand the exception to "a person referred to in paragraph (1.1)(b) or subparagraph (1.1)(c)(ii)".

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 100 - Subsection 100(1.1) 289

Subsection 100(1.5) - Deemed gain — dilution

Articles

Mitchell Sherman, Kenneth Saddington, "100 1 Damnations!", Corporate Finance, Volume XVIII, No. 3, 2012, p. 2126 at 2128: There are issues in the computation of the deemed capital gain under s. 100(1.5)

First, the ACB of the partnership interest does not appear to be relevant in the determination of the deemed gain; accordingly, a dilution could result in a significant capital gain subject to subsection 100(1) in circumstances where an actual disposition of the partnership interest would not have resulted in a material gain. Whether or not the actual ACB of the partnership interest is preserved (creating a latent loss) may depend on the nature of the transaction that caused the dilution. Second, determining the quantum of the deemed dilution gain may require some interesting math, and the amount of such gain might not be an appropriate result. [fn. 10: Assume for example that a taxable Canadian corporation and a Tax Exempt are 50/50 partners in a partnership that is worth $1,000. The partnership borrows $100 to return capital to the corporation. The corporation might be deemed to have a $100 capital gain under subsection 100(1.5). However, consider the following alternative transaction. Each of the partners receives a $50 return of capital (no interests in the partnership are redeemed or reduced legally), following which the Tax Exempt would purchase a portion of the corporation's partnership interest for $50. This would only result in a $50 transaction that is subject to subsection 100(1), and would ostensibly result in the same ultimate ownership structure. What this suggests is that the initial dilution transaction partially diluted the corporation's remaining 44.4% interest in the partnership (i.e., it sold to itself), and it should not be taxed on the extra reduction in value.]

Subsection 100(2.1) - Idem [Gain from disposition of interest in partnership]

Administrative Policy

S4-F7-C1 - Amalgamations of Canadian Corporations

s. 100(2.1) applies to non-qualifying amalgamation

1.42 Where the new corporation is not related to the predecessor corporation, subsection 100(2.1)… requires the predecessor corporation to recognize a gain on the disposition of any partnership interest which had a negative adjusted cost base immediately before the amalgamation. The rule in subsection 100(2.1) will apply even where the amalgamation is not a qualifying amalgamation for the purposes of section 87.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 111 - Subsection 111(12) application following amalgamation 103
Tax Topics - Income Tax Act - Section 116 - Subsection 116(1) deemed tcp following amalgamation 155
Tax Topics - Income Tax Act - Section 13 - Subsection 13(5.1) continuity of s. 13(5.1) on amalgamation 126
Tax Topics - Income Tax Act - Section 165 - Subsection 165(1) Amalco can continue objection and receive refunds 145
Tax Topics - Income Tax Act - Section 169 Amalco can continue objection 97
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(n) reserve after amalgamation 50
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Shareholder shareholder need not hold shares 82
Tax Topics - Income Tax Act - Section 251 - Subsection 251(3.1) deemed non-arm's length relationship on amalgamation 164
Tax Topics - Income Tax Act - Section 256 - Subsection 256(7) - Paragraph 256(7)(b) realted party, majority and 50% group exceptions 448
Tax Topics - Income Tax Act - Section 40 - Subsection 40(1) - Paragraph 40(1)(a) - Subparagraph 40(1)(a)(iii) reserve after amalgamation 50
Tax Topics - Income Tax Act - Section 66.7 - Subsection 66.7(7) successoring where non-wholly owned amalgamation 85
Tax Topics - Income Tax Act - Section 69 - Subsection 69(13) no disposition of predecessor property on general principles 103
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.4) s. 87(5) not applicable 104
Tax Topics - Income Tax Act - Section 80.01 - Subsection 80.01(3) non-87 amalgamation/no FX gain 159
Tax Topics - Income Tax Act - Section 84 - Subsection 84(3) no deemed dividend to dissenter on amalgamation 81
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) election filing by Amalco 103
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1.1) s. 87(1.1) qualifies for all s. 87 purposes 60
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1.2) successoring where non-wholly owned amalgamation 85
Tax Topics - Income Tax Act - Section 87 - Subsection 87(10) deemed listing of temporary Amalco shares 114
Tax Topics - Income Tax Act - Section 87 - Subsection 87(11) gain if high PUC is sub shares 47
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1) presumptive satisfaction of s. 87(1)(a)/dissent and squeeze-outs onside 260
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(a) new corp/deemed year end coinciding or not with acquisition of control 0
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(b) Amalco must follow predecessor's valuation method subject to truer picture doctrine 58
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(c) reserve after amalgamation 103
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(d) cost amount carryover 135
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(e.1) s. 100(2.1) applies to non-qualifying amalgamation 58
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(o) no continuity rule for non-security options 133
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2) - Paragraph 87(2)(q) pre-amalgamation services 96
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2.11) loss-carry back to parent 159
Tax Topics - Income Tax Act - Section 87 - Subsection 87(2.1) dovetailing with s. 88(1.1) 38
Tax Topics - Income Tax Act - Section 87 - Subsection 87(3.1) 328
Tax Topics - Income Tax Act - Section 87 - Subsection 87(3) PUC shifts 181
Tax Topics - Income Tax Act - Section 87 - Subsection 87(4) fractional share cash/ACB or value shift/implied non-recognition for predecessor shares 247
Tax Topics - Income Tax Act - Section 87 - Subsection 87(7) dovetailing with s. 78 and 112(12) 171
Tax Topics - Income Tax Act - Section 87 - Subsection 87(9) allocation of s. 87(9)(c)(ii) excess as parent chooses 218
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1) - Paragraph 88(1)(d) late designation 106
Tax Topics - Income Tax Act - Section 88 - Subsection 88(1.1) dovetailing with s. 87(2.1) 56
Tax Topics - Income Tax Act - Section 98 - Subsection 98(5) partnership dissolution on amalgamation 123
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2.2) deemed non-arm's length relationship on amalgamation 415
Tax Topics - Income Tax Regulations - Regulation 1100 - Subsection 1100(2) deemed non-arm's length relationship on amalgamation 323
Tax Topics - Income Tax Regulations - Regulation 1102 - Subsection 1102(14) class continuity on non-arm's length amalgamation 311
Tax Topics - Income Tax Regulations - Regulation 8503 - Subsection 8503(3) - Paragraph 8503(3)(b) pre-amalgamation services 96

Subsection 100(3) - Transfer of interest on death

Articles

H. Michael Dolson, "Death of a Partner - tax Consequences of an Unwritten Partnership Agreement", Business Vehicles, Vol. XIV, No. 2, p. 739.

Subsection 100(4) - Loss re interest in partnership

Administrative Policy

12 November 2009 Internal T.I. 2009-0315431I7 - Interaction of subsections 100(4) and 40(3.4)

The stop loss rules in s. 100(4) or 93(2.2) apply at the time of the actual disposition of the property to determine the amount of the taxpayer's capital loss. It is that adjusted amount of the loss to which s. 40(3.4) may apply if, for example, there was a disposition to an affiliate.

The position of the taxpayer that where s. 40(3.4) applies to the disposition of a limited partnership interest, s. 100(4) would not apply until the deemed disposition date set for in s. 40(3.4)(b) "could result in a different loss being calculated, and, in fact, could result in the circumvention of ss.100(4) or 93(2.2) entirely, depending on the circumstances".