Principal Issues: Whether subsection 98(3) applies on the dissolution of a partnership because of the uniting of all the partnership interests in the hands of a single partner?
Position: No
Reasons: The other members do not receive any property of the partnership at the time of its dissolution.
FEDERAL TAXATION ROUNDTABLE 10 OCTOBER 2014
2014 APFF CONFERENCE
Question 23
Winding-up of a SENC into another SENC
Where a partnership ceases to exist, subsection 98(2) specifies that any property transferred to the partners of the partnership is deemed to have been disposed of for an amount equal to its FMV. The partner is thereupon deemed to have acquired the transferred property for an amount equal to this FMV.
Provisions mitigate the effects of subsection 98(2) include subsections 98(3) and 98(5).
The holding of all the interests in the hands of a single partner, in the case where no one else became a partner within 120 days, results in the winding-up of the SENC.
Thus, during the winding-up of a SENC into another SENC, there could be no rollover of property under subsection 98(5) could not apply because there must be a continuation of the business by a single person who is an individual, a trust or a corporation.
The distribution of property without tax impact under subsection 98(3) applies only where a partnership has ceased to exist and all the partnership property has been distributed to persons who were members of the partnership immediately before that time so that immediately after that time each former partner has, in each such property, an undivided right equal to its percentage of ownership in the partnership before the dissolution.
Question to the CRA
In the situation described above, assuming that subsection 98(2) does not apply and considering that subsection 98(5) does not apply, is the CRA of the view that subsection 98(3) could apply considering that at the time of the dissolution of the SENC there remained only one partner and all the property of the SENC was distributed to it immediately after that time?
CRA response
For the purposes of our reply, we have assumed, without commenting on this issue, that the partnership in the situation described, ceased to exist under the Civil Code of Québec at the time that all interests became held in the hands of a single partner,. We have assumed that this is the case because the other partners had all previously disposed of their interests in favour of the remaining partner. We also have assumed that all property of the partnership was distributed solely to the remaining partner at the time of its winding-up.
One of the stated conditions in subsection 98(3) is that all the property of the partnership has been distributed to persons who were its partners immediately before its winding-up. In the situation described above, we are of the view that such condition is not satisfied because the other partners would not receive any property of the partnership on its winding-up.
Sylvain Grégoire
(450) 926-7472
2014-053817