A taxpayer ("Taxpayer") subscribed for limited partnership units in a limited partnership ("LP"), which used the funds raised to subscribe for flow-through shares, with resulting renunciations of Canadian exploration expenses to LP being allocated to each limited partner including the Taxpayer.
Approximately two years later, the LP transferred its property (the flow-through shares) on s. 85(2) rollover basis to a variable capital investment company ("SIVAC") in consideration for common shares of SIVAC, and LP was then wound-up under s. 85(3), so that the SIVAC shares of LP were distributed to the limited partners, including the Taxpayer.
Is the ACB of the SIVAC shares distributed to the limited partners necessarily nil, i.e., does s. 66.3(3) deem a nil cost to such shares in the Taxpayer’s hands? CRA responded:
Although the ACB of the flow-through shares held by LP is deemed to be nil under subsection 66.3(3), the ACB related to the Taxpayer's ownership interest in LP could be other than nil.
Consequently … the cost incurred by the Taxpayer for shares of the capital stock of SIVAC … is deemed, by virtue of paragraph 85(3)(f), to be equal to the ACB of the Taxpayer’s interest in the LP immediately before the winding-up of LP.
The computation of the Taxpayer's ACB for the Taxpayer’s interest in LP, which would be a capital property, should be in as set out in paragraphs 53(1)(e) and 53(2)(c) (taking into consideration, among other things, subsection 66.8(1) et seq.) and could, depending on the circumstances, be other than nil.