| 24(1) | 5-903187 |
| Bill Guglich | |
| (613) 957-2102 |
19(1)
December 18, 1990
Dear Sirs:
This is in reply to your letter of November 7, 1990 in which you requested our interpretation of the transitional rules for, paragraph 28(1)(c) of the Income Tax Act (the Act) in respect of the following issues.
1. Paragraph 96(1)(a) of the Act requires that the income from the farming business carried on by the partnership must be computed as if the partnership was a separate person carrying on the business. Each partner's share of the farming income is then allocated to him pursuant to paragraphs 96(1)(f) or (g). Since Paragraph 28(1)(c) of the act is relevant in calculating income at the partnership level the reference in the preamble to the transitional rules to "a farming business that was carried on by him before 1989" refers to the partnership and not to any of the partners. Consequently, in your example it is the partnership which must meet the "farming business ... carried on ... before 1989" condition in the preamble to the transitional rules.
2. You describe a situation where individual A acquires a specified animal in 1985 and sells it to a related person namely individual B in 1990. Since paragraph 251(1)(a) of the Act deems related persons not to deal with each other at arms length, B for purposes of the transitional rules shall be deemed to have acquired the specified animal in 1985. As a result B would be entitled to use the "elective" transitional rules provided all the conditions therein are met.
3. Paragraph (a) of the transitional rules refers to a taxpayer acquiring a specified animal from a person with whom he was not dealing at arm's length. The reference to a person in the above context does not include a partnership since a partnership is not a person. A partnership is by definition "the relationship that subsists between persons carrying on business with a view to profit". However, in determining a partner's income or loss from a partnership, subsection 96(1) of the Act requires the partnership to first compute its income as if it were a person. Each partner's share then flows through to him pursuant to paragraph 96(1)(f) or (g) of the Act. In the above context it is the income of the taxpayer acquiring the specified animal that is being computed. The transitional rules are only relevant in computing the income of the taxpayer acquiring the specified animal, in that paragraph 28(1)(c) of the Act is only applicable in respect of animals owned by a taxpayer at the end of the taxation year.
We trust this will be of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch