MEMORANDUM
TO HALIFAX DISTRICT OFFICE Kevin McGuigan Chief of Audit Review
Dec 22 1989
FROM Specialty Ruling Directorate G. Thornley (613) 957-2101
SUBJECT: Subsections 98(3) and 98(5) of the Income Tax Act
This is in reply to your memorandum of June 16, 1989, and further to our telephone conversation of November 24, 1989 (Thornley/McCuigan) concerning a letter from XXXX. We regret the delay in replying to your memo.
You ask for our comments and opinions regarding the partnership issues raised in the aforementioned letter. As we understand it, one partnership, Partnership A, has acquired all outstanding units of Partnership B. Because there are now no outside unit holders for Partnership B, and for other reasons, it is desired to merge the two partnerships. It was indicated that a merger, if possible, should not involve elections by the partners of Partnership A as it would involve several hundred persons.
It is desired to terminate the existence of Partnership B and have all its assets and liabilities flow up to Partnership A and then apply the provisions of subsection 98(5) of the Act to the transactions. However, some concern is expressed that the expression in subsection 98(5) to "one, but not more than one, of the persons who were, immediately before the particular time, members of the partnership" might not apply to another partnership.
Our Comments
As discussed during our telephone conversation of November 19th, 1989, Interpretation Bulletin IT-413 referred to in the XXXX letter, has been replaced by IT-413R dated July 7, 1989. Paragraph 1 makes it clear that the rules in subdivision j apply to a partnership which is a member of another partnership and paragraph 4 makes it clear that one partner can execute the subsection 97(2) election providing he has the authority to act on behalf of the members of both partnerships that are involved in the transaction.
As the revision in IT-413R appears to answer all the questions raised by XXXX your reply to their letter should include a reference to IT-413 .
We trust this is the information required.
Yours truly,
for Director Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch