Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether XXXXXXXXXX can deduct a reserve, pursuant to subsection 34.2(4) of the Act, in respect of December 31, 1995 income from the partnership.
Position:
XXXXXXXXXX is able to claim a reserve pursuant to subsection 34.2(4) of the Act in respect of her "December 31, 1995 income" for that business. The amount of the reserve cannot exceed the least of the amounts specified in paragraph 34.2(4)(a), (b) and (c).
Reasons:
Subsection 96(1.1) provides, inter alia, that XXXXXXXXXX is deemed to be a member of the partnership for the purposes of sections 34.1 and 34.2. There is a deeming provision in subsection 96(1.6) of the Act that deems XXXXXXXXXX to be carrying on the business of the partnership in Canada for the purposes of the rules of subsections 34.1 and 34.2 of the Act. Subsection 34.2(6) does not apply to the present situation.
March 8, 2000
Ottawa Tax Services Office Income Tax Rulings Directorate Client Services Sylvie Labarre, CA (613) 957-8953 Attention: Nicole Côté 2000-000953
XXXXXXXXXX
Reserve in respect of December 31, 1995 income
This is in reply to your facsimile of February 23, 2000 concerning the reserve in respect of December 31, 1995 income in subsection 34.2(4) of the Income Tax Act (the "Act").
Facts
1. XXXXXXXXXX was a retired partner of the XXXXXXXXXX.
2. There was a provision within the Partnership Agreement of XXXXXXXXXX that when a partner retires from active practice he (she) is entitled to an allocation of income throughout the retirement years based on the number of years served as a partner and the age of retirement. If the partner so elects (as XXXXXXXXXX did), a portion of the income allocation continues to be paid after the partner's death to a surviving spouse. The principal activity of the partnership is carrying on a business in Canada.
3. In the year XXXXXXXXXX died and left his income entitlement to his spouse.
4. XXXXXXXXXX was in receipt of Form T5013 for her allocation of income.
5. Subsection 34.2(6) does not apply to the present situation.
Question
You have asked whether XXXXXXXXXX can deduct a reserve, pursuant to subsection 34.2(4) of the Act, in respect of December 31, 1995 income from the partnership.
Our comments
According to the facts, the agreement to allocate a share of the income of the partnership to XXXXXXXXXX who ceased to be a member of the partnership or to XXXXXXXXXX is an allocation of income to which subsections 96(1.1) and 96(1.6) of the Act apply.
Subsection 96(1.1) provides, inter alia, that XXXXXXXXXX is deemed to be a member of the partnership for the purposes of sections 34.1 and 34.2. There is a deeming provision in subsection 96(1.6) of the Act that deems XXXXXXXXXX to be carrying on the business of the partnership in Canada for the purposes of the rules in subsections 34.1 and 34.2 of the Act.
This ensures that XXXXXXXXXX is able to claim a reserve pursuant to subsection 34.2(4) of the Act in respect of her "December 31, 1995 income" for that business. The amount of the reserve cannot exceed the least of the amounts specified in paragraphs 34.2(4)(a), (b) and (c).
We trust that our comments are of assistance.
Marc Vanasse, CA
Manager
Resources, Partnerships and Trusts Section
Income Tax Rulings Directorate
Policy and Legislation Branch
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