Principal Issues: Whether an amount included by virtue of section 34.2 in the income of a corporation can be added to the ACB of the partnership interest held by the corporation.
Position: No.
Reasons: Application of the Act.
XXXXXXXXXX 2017-068705 M. Séguin May 10, 2017
Dear Sir,
Subject: Section 34.2 and paragraph 53(1)(e)
This is in response to your e-mail of February 7, 2017, in which you requested our comments on section 34.2 and paragraph 53(1)(e) of the Income Tax Act (hereinafter, the "Act").
Unless otherwise indicated, any reference to a statutory provision is to a provison of the Act.
This technical interpretation provides general comments on the provisions of the Act and related legislation, where referenced. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R7, Advance Income Tax Rulings and Technical Interpretations.
Your question
You asked whether an amount included in the income of a corporation under subsection 34.2(2) may be added by virtue of paragraph 53(1)(e) to the adjusted cost base ("ACB") of the interest in a partnership held by a corporation.
Our comments
Subparagraph 53(1)(e)(i) provides for the addition, to the ACB of an interest in a partnership at a particular time, of an amount in respect of each fiscal period of the partnership ending after 1971 and before that time, equal to the total of all amounts each of which is the taxpayer’s share of the income of the partnership from any source for that fiscal period (subject to certain adjustments).
Subsection 96(1) et seq. deal with the computation of the income of a taxpayer who is a member of a partnership. In particular, the taxpayer's share of the partnership's income will be calculated under paragraph 96(1)(f). In this regard, subparagraph 96(1)(d)(i) provides that each income or loss of the partnership for a taxation year is to be computed as if the Act were read without reference to section 34.2.
Thus, the amount included under subsection 34.2(2) in the income of a corporation holding a partnership interest will not be included in the corporation's share of the partnership's income from any source. Therefore, for the purposes of subparagraph 53(1)(e)(i), there would be no addition to the ACB to the corporation of the partnership interest in an amount otherwise included in the income of the corporation under subsection 34.2(2).
Furthermore, there is no other provision in paragraph 53(1)(e) for adding, to the ACB of the partnership interest, the amount that would be included in computing the corporation's income under subsection 34.2(2).
Best regards,
Urszula Chalupa, LL.B, M. Fisc.
for the Director
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy
and Regulatory Affairs Branch