DECISION SUMMARY Corporate Reorganizations Section
6041-3 G.C. Boehmer
July 16, 1986
Reference: Paragraph 87(2)(e), Subsections 40(3) and 100 (2).
Issue: If a corporation holding a partnership interest has been required to deduct, pursuant to paragraph 53(2)(c), amounts in computing the ACB of the partnership interest in excess of the cost of the partnership interest plus the amounts required to be added thereto pursuant to paragraph 53(1)(e), does such a "negative" ACB flow through on an amalgamation so that a gain will be realized by the amalgamated corporation in respect of the negative ACB when it disposes of the partnership interest? The taxpayer's representative in the particular ruling application had requested a ruling that such a negative ACB disappeared on an amalgamation so that no gain would ever be realized in respect of the negative ACB by the amalgamated corporation on a disposition of the partnership interest.
Position:
If the predecessor corporation holds a partnership interest with a negative ACB, it could be argued that such negative ACB to the predecessor becomes the cost to the amalgamated corporation and there would be a gain realized pursuant to subsection 40(3) by the amalgamated corporation by virtue of the amalgamation. However, if the cost to the predecessor flows through to the amalgamated corporation and the amalgamated corporation is deemed to have made all the adjustments to the ACB that were made by the predecessor corporation, subsection 100(2).would apply at such time as the amalgamated corporation disposes of the partnership interest. It was decided that the latter view should be maintained and that the negative ACB of a partnership interest does not simply disappear on an amalgamation of the corporate partner. From a policy viewpoint, we have been advised by Current Amendments that the negative ACB should flow through to the amalgamated corporation for realization as a gait when it disposes of the partnership interest.
Comments:
XXXX
Chief
Corporate Reorganizations Section Reorganizations and Non-Resident Division
Specialty Rulings Directorate Legislative and Intergovernmental
Affairs Branch