The 100 units of a limited partnership (LP), which on an FMV basis has a deficit of $108,000 (i.e., liabilities of $110,000 and assets of $2,000), are held as to 99 and 1 by Partner Inc. and its wholly-owned subsidiary GP Inc., respectively. In order to pay off the bank debt, Partner Inc. subscribes for 100 units of LP for $100,000, so that such debt is discharged and the deficit reduced to $8,000.
(a) Does such subscription represent an acquisition of property by Partner Inc. for purposes of s. 69(1)(a), or is it a "contribution of capital" for s. 53(1)(e)(iv) purposes?
(b) If s. 69(1)(a) so applies, would the difference between the cost of acquiring the additional 100 units and their FMV, i.e., $100,000, be a "contribution of capital" for s. 53(1)(e)(iv) purposes?
CRA responded:
[W]e believe that the partner, in consideration for the $100,000 payment, acquired a greater interest in the partnership by acquiring part of a property. We believe that subsection 69(1) could apply to the acquisition of part of a property, especially since the wording of that provision uses the word "anything".
In this case, to the extent that Partner Inc. has not conferred a benefit on GP Inc. by subscribing for LP units, if the units issued have a value that is less than their issue price, that value (in this case $0), determined in accordance with paragraph 69(1)(a), will be added to the cost of the units. The difference between the amount paid and the value of the units will be added to the ACB of the interest pursuant to paragraph 53(1)(e)(iv).