10 March 2011 External T.I. 2008-0302851E5 - Application of subsection 96(1) to capital gains -- summary under Exempt Earnings

Where Canco owns all the shares of two foreign affiliates (FA1 and FA2) which, in turn, each hold a 50% interest in a partnership, the exempt portion of a capital gain realized by the partnership will be included in the exempt earnings of FA1 and FA2, notwithstanding that s. 96(1) is silent with respect to each partner's share of that capital gain. Each of FA1 and FA2 will be considered to have been allocated a share of the capital gain in proportion to its respective interest in the partnership.