J.E. Grisé (613) 957-8977
XXXX
October 22, 1986
Dear sirs:
This is in reply to your letter of October 1, 1986 concerning the application of subsection 98(1) and section 99 of the Income Tax Act.
You describe the following situation:
1. A partnership has a fiscal year ending January 31, 1987.
2. The partnership ceases August 31, 1986. Not all of the partnership property will be distributed to the partners until some time after January 31, 1987.
3. One or more of the partners of the partnership have a negative cost base in their partnership interest at the date that the partnership ceases to in fact exist. Consequently, under subsection 98(1)(c) the aggregate of all amounts required by subsection 53(2) to be deducted in computing the adjusted cost base at the end of August would exceed the aggregate of all amounts required by subsection 53(1) to be added in computing the cost base of the partnership interest.
4. One or more of the partners of the partnership will elect under subsection 99(2) to have the partnership fiscal year end immediately before the time when the fiscal period of the partnership would have ended (January 31, 1987).
We agree with your contention that, for partners who would make an election under subsection 99(2) of the Act, the capital gain would arise from the disposition of the partnership interest immediately prior to the end of January 31, 1987.
Yours truly,
for Director Bilingual Services and Resource Industries Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
99(2) 98(1)(c)