| 24(1) | 5-903559 |
| J.E. Harms | |
| (613) 957-2109 |
19(1)
December 27, 1990
Dear Sirs:
Re: Paragraph 55(3)(b) of the Income Tax Act (Canada) (the "Act")
This letter is further to our letter to you of April 19, 1990 (our file 5-9428) which was written in response to your letter of January 19, 1990 in which you requested our views regarding the meaning of the phrase "property has become property of the particular corporation" in paragraph 55(3)(b) of the Act.
In particular, you wished to know whether we would consider property to have become property of a particular corporation that holds an interest in a partnership where, in the context of a butterfly reorganization of the particular corporation, the partnership is dissolved in contemplation of and before the butterfly transfer. On the winding-up or dissolution of the partnership, each partner receives an undivided interest in each asset of the partnership in proportion to his or its partnership interest.
In our letter of April 19, 1990, we advised you that we would consider property to have become property of the particular corporation upon the winding-up of the partnership in contemplation of and before the butterfly transfer and that, as such acquisition is not specifically permitted by any of subparagraphs 55(3)(b)(iii) to (viii), paragraph 55(3)(b) would not exempt the dividends paid in the course of the reorganization from the application of subsection 55(2).
We have since had the opportunity, in the context of a ruling request not related to your inquiry, to reconsider our position. Although the exact nature of a partner's interest in partnership property will depend on the terms of the agreement between the partners and the relevant partnership law, where it can be said that each partner's share is a proportionate interest in the specific items of property that together constitute the partnership property, we now take the position that, for purposes of paragraph 55(3)(b), no property becomes property of the partner when, upon a dissolution of the partnership, he receives an undivided-interest in each asset of the partnership in proportion to his partnership interest.
We trust the foregoing comments will be of assistance to you. We caution you, however, that they are provided in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2, dated September 28, 1990, and are not binding on Revenue Canada, Taxation.
Yours truly,
for DirectorReorganizations and Non resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch