Dear Sirs:
Re: Partitionment of Property
This is in reply to your letter dated April 10, 1991, requesting the Department's interpretation of the following hypothetical situation concerning the partitioning of property.
You have assumed that A Inc , B Inc., and C Inc., are the owners of a quarter section of land (containing approximately 150 acres of land) each owning an undivided interest in common as follows:
A Inc. 50%
B Inc. 25%
C Inc 25%
A Inc., B Inc. and C Inc. obtain subdivision approval in respect of the property so that the land may be partitioned, giving each owner separate title to a portion of the subdivided property as sole owner in fee simple. The property has not been developed and the subdivision approval does not have attached conditions such as reserve requirements or development or improvement obligations.
Specifically you enquired whether the Department will consider a disposition to have taken place on the partitionment of such a property as described above
Our Comments
The hypothetical facts provided do not give us the information necessary to arrive at a conclusion as to whether the Department would consider a disposition to have taken place. The subdivision of the land would in fact create at least three parcels of land. Under existing legislation, if the owners subdivide the quarter section, so that each owner exchanges an undivided interest in the quarter section for an undivided interest in each parcel, followed by an exchange of undivided interests so that each owns one or more parcels, there is no "partition". Such an event would be considered a barter of separate interests, and would therefore be a disposition and a taxable event. On the other hand, a partition would occur where each owner exchanges their undivided interest in the quarter section directly for a divided interest, prior to any further subdivision of the property.
The Department's position with respect to the subdivision and partitionment of property remains as stated in the 1981 and 1985 Canadian Tax Foundation Conference Reports. However, draft legislation concerning the subdivision and partition of property can be found in proposed subsections 248(20) and 248(21). A copy of these draft provisions is enclosed for your convenience. These subsections, applicable for dispositions occurring after July 13,1990, will deem dispositions not to have taken place in situations where the subdivision precedes the exchange of interests. We caution however, that these proposals have not yet been enacted
We trust our comments will be of assistance to you
Yours truly,
for DirectorBusiness and General Division Rulings DirectorateRulings DirectorateLegislative and Intergovernmental Affairs Branch