Where a limited partnership with resident and non-resident partners sells shares subject to an earnout, it is difficult to comply with paras. 2(e) and (f) of IT-426R respecting use of the cost-recovery method given that the limited partners generally will not have access to the sale contract and they do not have an obligation to themselves declare the capital gain on their own returns in a capacity of vendor. If the conditions in paras. 2(a) to (d) of the Bulletin are satisfied, can a limited partnership utilize the cost recovery method in these circumstances? CRA responded:
The conditions of application provided in paragraph 2 of IT-426R were not designed for limited partners of a limited partnership in a situation as described above.
Consequently, the cost recovery method could not be used by a limited partnership in such a situation.