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:
1.Whether shares and limited partnership units held by a partnership can be distributed to the partners and partitioned in a tax free manner.
Position:
1.XXXXXXXXXX on an similar ruling request we provided a favourable ruling that shares and units can be partitioned in the manner proposed without causing a disposition within the meaning of section 54
Reasons:
1. XXXXXXXXXX
The representatives has provided statement indicating that the partitioning can be done in accordance with the relevant law. We have made the ruling conditional upon these statements being accurate. The proposals in the ruling do not offend tax policy as we understand it.
XXXXXXXXXX 961817
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Re: Advance Income Tax Ruling -
XXXXXXXXXX
This is in reply to your request of XXXXXXXXXX for an advance income tax ruling on behalf of XXXXXXXXXX.
You have advised that to the best of your knowledge and the knowledge of the parties hereto:
(a)none of the issues involved in this request is being considered by a District Tax Services Office or Taxation Centre in connection with a tax return already filed; and
(b)none of the issues involved in this request is subject to any Notice of Objection or is under Appeal.
Unless otherwise indicated all terms have the meaning given thereto for the purposes of the Income Tax Act (Canada) (the "Act").
FACTS
1.The Partnership is a general partnership which is a Canadian partnership for the purposes of the Act. The Partnership was formed in XXXXXXXXXX with nominal contributions by each of its XXXXXXXXXX initial partners (the "XXXXXXXXXX") which each acquired XXXXXXXXXX Partnership Units. Shortly after its formation, the Partnership borrowed sufficient funds to acquire the XXXXXXXXXX shares. The funds were borrowed from XXXXXXXXXX. Following the acquisition of the XXXXXXXXXX shares, XXXXXXXXXX converted their debt obligations of the Partnership into XXXXXXXXXX Partnership Units each.
2.In XXXXXXXXXX transferred the XXXXXXXXXX shares to the Partnership in exchange for the Partnership Units they currently hold as set out in 5 below.
3.After XXXXXXXXXX, XXXXXXXXXX was wound up into XXXXXXXXXX such that XXXXXXXXXX became the holder of its XXXXXXXXXX Units. XXXXXXXXXX remains a Partner as shown in 5 below.
4.The Partnership acquired its interest in the XXXXXXXXXX for $XXXXXXXXXX paid by delivery of XXXXXXXXXX shares. The remaining XXXXXXXXXX shares referred to above remain assets of the Partnership.
5.The partners and their respective interests are as follows:
PARTNER INTEREST TAX ACCOUNT ADDRESS.
XXXXXXXXXX
All of the Partners are either taxable Canadian corporations or individuals resident in Canada for the purposes of the Act. All Partners file their tax returns at the XXXXXXXXXX Tax Services Office.
6.The Partnership was entered into as part of a business relationship between XXXXXXXXXX.
7.The assets of the Partnership are listed below:
XXXXXXXXXX.
All of the above corporations are taxable Canadian Corporations and public corporations incorporated under the laws of the Province of XXXXXXXXXX. The adjusted cost base of the shares to the Partnership is nominal, the trading value of the shares on XXXXXXXXXX was XXXXXXXXXX.
In addition the Partnership holds XXXXXXXXXX Class XXXXXXXXXX units of XXXXXXXXXX and reports business income from this source. This limited partnership interest carries on business in XXXXXXXXXX. The acb to the Partnership of XXXXXXXXXX is nominal and XXXXXXXXXX have a fair market value of approximately $XXXXXXXXXX.
The shares and Units are evidenced by certificates (the "Certificates").
7.The Partnership has no liabilities.
PROPOSED TRANSACTIONS
8.The Partnership will be dissolved in the manner contemplated in subsection 98(3) of the Act. Pursuant to subsection 98(3) of the Act, each Partner will jointly elect in respect of the Partnership Interest, in prescribed form and within the time referred to in subsection 96(4), that each such person's proceeds of disposition of the person's interest in the Partnership, the cost to each such person of the person's undivided interest in the shares and Units and the Partnership's proceeds of disposition of the shares and Units shall be determined in accordance with the rules in subsection 98(3) of the Act. The Certificates will be endorsed for transfer to one of the Partners as nominee (the "Nominee") and the Nominee will execute a trust acknowledgement pursuant to which the Nominee will acknowledge that the Nominee holds the shares and Units represented by each of the Certificates as bare trustee for each of the Partners to the extent of the interest of that Partner in the Partnership prior to the dissolution.
9.Following the dissolution of the Partnership each former Partner and the Nominee as bare trustee will request from the relevant transfer agent with respect to a particular Certificate that the Certificate be partitioned into new share and Unit certificates (the "Partition Certificates") on the basis that the former Partner will surrender the undivided interest that person held in the shares represented by a particular Certificate and receive a Partition Certificate evidencing ownership of that number of shares and Units which represent that person's undivided interest in the shares represented by the Certificate tendered to the transfer agent.
10.In your letter of XXXXXXXXXX you advised that the relevant common law and the Business Corporations Act (XXXXXXXXXX) provide for the partitioning of shares including, if necessary, the partitioning of shares into fractional shares. In your letter of XXXXXXXXXX you advised that the Units may be partitioned under the XXXXXXXXXX Partnership Act, including the partitioning of Units into fractional units.
PURPOSE OF PROPOSED TRANSACTIONS
The purpose of the Proposed Transactions is to facilitate the dissolution of the relationship between XXXXXXXXXX by distributing the property of the Partnership to XXXXXXXXXX followed by the partition of their respective interest in such property so that each may deal with their share of the property separately.
RULINGS
Provided the above statements of the facts and the proposed transactions are accurate and constitute complete disclosure of all of the relevant facts, the representations in 10 above are correct, and assuming the proposed transactions are carried out as described above, we confirm the following:
A.The provisions of subsection 98(3) of the Act will apply to the dissolution (as described in 8 above) to determine the amount of each former Partner's proceeds of disposition of the person's interest in the shares and Units, the cost to each such person of the person's undivided interest in the shares and Units and the Partnership's proceeds of disposition of the shares and Units.
B.The process described in paragraph 9 above will not constitute a disposition within the meaning of section 54 of the Act.
These Rulings are given subject to the general limitations and qualifications set forth in Information Circular 70-6R2 issued by Revenue Canada, Taxation on September 28, 1990 (as amended by Special Release dated September 30, 1992) and are binding provided the proposed transfer and partitioning is 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.
Yours truly,
for Director
Resources, Partnerships and
Trusts Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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