Mr. R. Shultis J.D. Brooks
Director 957-2097
Publications Division
7-4314SUBJECT: Review of Revision of IT-138R This is in reply to your memorandum of August 28, ,1989 in which you requested our comments regarding your draft of interpretation Bulletin 138R2. Our comments follow the order of the paragraphs in the bulletin rather than being in order of significance.
Page l
1. Line 20 (Application) - 27-183 was dated October 28,
1974 and not October 22.Page 2
2. Line 1 (paragraph 2) - For clarity, we suggest replacing
the word "deal" with "transact."3. Line 34 (paragraph 5) - Reference is made to income
retaining its "nature and character" whereas on lines 41
and 42 of page I of this bulletin and in paragraph 1 of
IT-l38R reference is made to "source and nature." is
this change in wording intentional?Page 3
4. Line 38 (paragraph 8) - To clarify the circumstances
under which the dividend will result in a lower capital
gain on disposition of a partner's partnership interest,
we recommend adding at the end of the sentence the words
"to the extent the dividend has not been paid out to the
partner."5. Line 40 (paragraph 8) - We recommend adding, after
"capital dividend account," the words "by virtue of
subparagraph 89(1)(b)(ii) of the Act."6. Lines 44 and 46 - reference to "Kay 25" should read
as "Kay 24" and the reference to subparagraph
"89(1)(b)(iv)" should read as "89(1)(b)(v)."Page 4
7. Line 8 (paragraph 9) - It may add clarity to add the
words "by them" folloving the uords "businesses carried on."8. Line 43 (paragraph 13) - Since the "portion" becomes the
respective gain or loss, ve suggest replacing the words
"to be taken into account in computing" vith "which viii
be."Page 5
9.
21(1)(b)
lO. Line l7 (paragraph l3) - it may be clearer to use the
words "divided by" in place of "over."Page 7
Il. Line lO (paragraph 21) - We suggest adding the word
"non-depreciable" at the end of the line. Although the
words you have used in this sentence track the language
employed in subsection 80(1) of the Act, the additional
descriptor clarifies the effect of the prescribed
regulation.Page 8
12. Lines 10 to l3 (paragraph 25) - In paragraph 101(d) of
the Act, the restriction is that the deductible amount
cannot exceed 4/3 of the taxpayer's taxable capital gain
from the disposition. Therefore, we recommend replacing
lines 10 to 13 with the following: ".... partner, to the extent that the amount does
not exceed 4/3 of the taxpayer's share of the
taxable capital gain on the disposition of the
farmland. For taxation years and fiscal
periods ..."13. Line 17 (paragraph 26) - The words "... taxation years
and ..." should be inserted immediately before "fiscal
periods."14. Line 21 (paragraph 26) - The reference to (paragraph)
"24 above" should be "25 above."I5. Lines 19 and 20 (paragraph 26) - it may be clearer to a
reader if the substitution of the fractions read.as "2/3
in place of 3/4, and 3/2 in place of 4/3."16. Line 25 (paragraph 26) - The word "fractions" should be
replaced with "rules" since this provision does not
apply to all corporations.17.
21(1)(b)
18. Lines l to8 (paragraph 29) - The sentence which
describes the restriction is difficult to read and
therefore we suggest replacing lines I to 8 uith the
following: "... periods ending after December 15, 1987.
However, where a taxpayer acquired his partnership
interest before December 16, 1987, or after
December 15, 1987 pursuant to an obligation in
writing entered into before December 16, 1987, this
restriction will not apply in respect to
expenditures made before December 16, 1987 or
expenditures made after December IS, 1987 and
before 1989 pursuant to an obligation in writing
entered into by the partnership before December 16,
1987. For complete details, refer to the
application provisions in the Act."Page 10
19. Line 12 (paragraph 32) - Following the words "where the
member," we recommend the insertion of the words "or a
person who does not deal at arm's length with the
member."20. Lines 17 and 22 (paragraph 32) - Since the purpose of
subsection 96(2.4) is to determine whether a particular
member is a limited partner, we suggest replacing the
words "a limited partner" with "a member." Also note
that this will be consistent with the use of "member" in
the first sentence of the paragraph. Similarly, in line
18 we suggest replacing the word "taxpayer" with
"member."Page 11
21. Line 6 (paragraph 33) - The word "met" should be "meet"
to be consistent with the tense of the other verbs in
the sentence. 22. Line 28 (paragraph 35) - it would be more precise to
refer to "deemed cost" rather than "cost."23. Line 44 (paragraph 37) - The reference to the at-risk
amount should be to the at-risk amount less the
reductions referred to in the preceding sentence.
Therefore we suggest using "reduced at-risk amount" in
place of "at-risk amount" in line 44, with the
parenthetical description `(the "reduced at-risk
amount")' added to the end of the sentence on line 42.Page 12
24. Lines 5 and 6 (paragraph 38) - Since the business is
supposed to be actively carried on, we recommend
replacing the words "which carried on a business or
rented or leased" with "which actively carried on a
business or which rented or leased."25. Line 7 (paragraph 38) - The word "continues" should be
"has continued." Also, the word "changes" should be
narrowed to "increases in its capital or indebtedness."26. Various references in the bulletin to specific partners
(e.g. "the" partner) and partnerships could be
generalized (e.g. "a" partner). For instance, it is
stated in line 37 of page 1 that "the general rule is
that partnership..." and this should refer to "a
partnership."27. The various references in the bulletin to resource
"expenditures" should be reworded as resource "expenses"
in order to be consistent with the language used in the
Act. The following occurrences of `such have been
identified: Page 1, line 28 (Summary).
Page 7, line 26 (paragraph 23).
Page Il, lines 44 and 47 (paragraph 37).We hope these comments will be useful to you.
Director Business and General Division Specialty Rulings Directorate Legislative and intergovernmental Affairs Branch