| 5-913182.3 | |
| D. Bouffard | |
| 24(1) | (613) 957-8953 |
Attention: 19(1)
June 11, 1992
Dear Sir:
We are writing in reply to your letter of November 5, 1991, wherein you requested our comments regarding the application of the Income Tax Act (the "Act") to work in progress. We apologize for the delay in responding to your letter.
While we are unable to provide confirmation of the income tax situation described in your letter, we can offer the following general comments related to the application of paragraphs 34(a), 98(1)(a), subsections 99(1) and 99(2) of the Act.
By virtue of subsection 99(1) of the Act, the fiscal period of a partnership is deemed to end when the partnership actually ceases to exist even if subsection 98(1) of the Act deems the partnership not to have ceased to exist by virtue of incomplete distributions of the partnership's assets. Whether or not a partnership actually ceases to exist is a question of fact.
Such property distributions after cessation of the partnership means that the partnership will have at least another fiscal year end until distribution of all assets is completed (for instance, in your example, on October 31, 19-2).
As mentioned in paragraph 4 of IT-358, an individual who was a member of a partnership that actually ceased to exist may elect under subsection 99(2), for purposes of computing his income, to treat the fiscal period of the partnership as ending at the time when it normally would have done so (as, in your example, on January 1, 19-2 and on January 1, 19-3) had the partnership not actually ceased to exist.
It is also our opinion, as expressed in the Interpretation Bulletin IT 457, paragraph 8, that where an individual carries on a designated professional business in a partnership and the business ceases to exist, an election made by the individual or partnership under paragraph 34(a), and in force at the time of the dissolution, ceases to be in force immediately thereafter. However, it is also our views that where the designated professional business which was formerly carried on by a Canadian partnership is carried on by one of the former partners and the provisions of subsection 98(5) are met, the election made under paragraph 34(a) continues to be valid for that former partner. In your example, however, the leaving partner would be required to include in his income his work in progress in his 1993 taxation year.
These comments represent our opinion of the law as it applies generally. As indicated in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990, this opinion is not a ruling and accordingly, it is not binding on Revenue Canada, Taxation.
Yours truly,
for DirectorManufacturing IndustriesPartnerships and Trusts DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch