QUESTION 14 - PARTNERSHIP ROLLOVERS
Assume that real property is to be transferred to a partnership pursuant to subsection 97(2) but there is some question as to whether the property constitutes inventory or capital property.
If an election is made indicating that the property is inventory, would the election be invalid? In order to leave open the argument that the property is capital property, would that taxpayer be best advised to file two election forms, one indicating the property is capital property and the other that it is inventory? Would an election that does not state whether the property is inventory or capital be acceptable.
DEPARTMENT'S POSITION
Where an election under subsection 97(2) is made indicating that particular property is capital property, but upon subsequent review by Revenue Canada it is determined to be inventory the election filed will not, for this reason, be considered invalid. Where there is a question at the time of filing the election as to whether a particular property constitutes inventory or capital property, only one election should be filed. As indicated of Form T2059, in order to make an election for a specific property, it is necessary to indicate the category of that property, e.g. capital property or inventory.
C.R. Bowen