A limited partnership (LP) with various limited partners received a contribution of a building (with a UCC of $3 million and an FMV of $4 million) from two corporate partners (Corporations 1 and 2) on a s. 97(2) rollover basis, with it being agreed that they would bear the deferred tax liability. Subsequently, the property was sold for $3.5 million at a time that the UCC was $2.8 million. As the LP had an operating loss of $200,000, the two corporations were allocated income of $500,000.
CRA stated:
[T]he possible sharing, as described in your letter, seems reasonable on its face, although we do not have enough information to determine whether the main purpose of the income sharing is to reduce taxes or to defer the payment of taxes and whether the allocation of income should be modified under subsection 103(1).