Principal Issues: [TaxInterpretations translation] Can the legal representative of a deceased taxpayer elect pursuant to subsection 70(6.2) in respect of only a portion of a partnership interest?
Position: No. If the legal representative wishes to make an election under subsection 70(6.2), he or she must do so in respect of the entire partnership interest.
Reasons: A partnership interest is one property of the deceased. Subsection 70(6.2) does not provide for an election in respect of only a portion of the property.
XXXXXXXXXX 2006-020639 Sylvie Labarre, CA July 11, 2007
Dear Sir,
Subject: Election under subsection 70(6.2) of the Income Tax Act
This is in response to your email of September 19, 2006, in which you requested our opinion regarding the election under subsection 70(6.2) of the Income Tax Act (the "Act") in respect of a partnership interest. We apologize for the delay in responding to this request.
A deceased person held, at the time of death, an interest in a family farm partnership as defined in subsection 110.6(1) of the Act, thereby allowing the deceased to claim the capital gains deduction in respect of qualified farm property under subsection 110.6(2).
As a result of the deceased's death, the interest in the family farm partnership is transferred to the deceased's spouse or common-law partner (or to a trust described in paragraph 70(6)(b)) and the conditions in subsection 70(6) are satisfied. Consequently, in order for the deceased to realize a capital gain, the deceased's legal representative would be required to make an election on the deceased's income tax return for the year of death, pursuant to subsection 70(6.2), so as not to have subsection 70(6) apply in respect of the property.
In some of the situations that you have identified, the taxable capital gain on a deemed fair market disposition of the family farm partnership interest may exceed the capital gains deduction computed under subsection 110.6(2). In such situations, you wish to know if the deceased taxpayer's legal representative could elect to have subsection 70(6) not apply to only a portion of the partnership interest.
Our Comments
As stated in paragraph 22 of Information Circular 70-6R5 dated May 17, 2002, it is the practice of the Canada Revenue Agency (CRA) not to issue written opinions on proposed transactions otherwise than through advance rulings. Furthermore, when it comes to determining whether a completed transaction has received appropriate tax treatment, that determination is made first by our Tax Services Offices as a result of their review of all facts and documents, which is usually performed as part of an audit engagement. However, we can offer the following general comments that we hope may be helpful to you. These comments may, however, under certain circumstances, not apply to your particular situation.
It is our view that a partnership interest, even if it is represented by the holding of units with or without identical rights, constitutes a single property of the partner. Thus, a disposition of a portion of the partnership interest would represent a partial disposition of a single property.
The legal representative of a deceased person may elect under subsection 70(6.2) not to have subsection 70(6) apply in respect of a property. Such an election is made on a property-by-property basis. The CRA's position is that subsection 70(6.2) does not provide for an election in respect of only a portion of a property. Consequently, a legal representative cannot elect under subsection 70(6.2) only in respect of the portion of the interest in a family farm partnership giving rise to a taxable capital gain that is exempt from tax because of the capital gains deduction.
This is different from a situation where the deceased holds various shares of a corporation that qualify as qualified small business corporation shares or as shares of the capital stock of a family farm corporation. In fact, each share represents a property in itself in respect of which the deceased taxpayer's legal representative may elect, by virtue of subsection 70(6.2), not to apply subsection 70(6) of the Act. Thus, the legal representative will only be able to make the election in respect of a certain number of shares.
We hope that these comments will be of assistance.
Best regards,
Alain Godin
for the Director
International Operations and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch.