The 2001 to 2010 taxation years of limited partners of a tax shelter limited partnership were reassessed under s. 152(1.7)(b) in accordance with Minutes of Settlement that contemplated increases to their share of partnership deductions claimed under s. 20 (consistent with redeterminations made in respect of the partnership pursuant to s. 152(1.4)).
1. Was the Minister authorized to assess the limited partners beyond the normal reassessment period for their 2011 taxation year to include any amount in respect of the disposition of their partnership units in 2011, given that no redetermination in respect of the partnership was made for 2011 under s.152(1.4), and 2011 was also not part of the period discussed in the Minutes of Settlement?
2. If such 2011 reassessments were permitted, was the Minister authorized to reassess the entire capital gain, or was the authority under s.152(1.7)(b) only to increase the gain based on the increased losses as redetermined for the 2001 to 2010 taxation years under s. 152(1.4)?
1. The Directorate found that s. 152(1.4) authorizes the Minister to determine the correct ACB per LP unit of a member of LP, as it is an amount that is relevant in determining the taxable income of a member of LP for “any taxation year,” including the year in which the member realizes a taxable capital gain (or deemed taxable capital gain) with respect to their interest in LP. It noted that in contrast to s. 152(4.3), which “essentially only allows reassessments of subsequent taxation years to reflect changes consequential to the particular balance changed,” ss. 152(1.4) and (1.7) “allow reassessments of any taxation year of a member of a partnership to give effect to potentially numerous changes of amounts or matters in respect of a partnership.”
2. Given that the redetermination issued to the partnership under s. 152(1.4) encompasses a redetermination of the ACB of a partnership interest, and a member’s revised at-risk amount includes the initial capital contributed by the member, the Directorate concluded that the Minister has the authority under s. 152(1.7)(b) to (re)assess the entire taxable capital gain in 2011, calculated in accordance with the Act. The Directorate stated that a “somewhat modified application of the New St. James principle [66 DTC 5241]” (which been used in recognizing a corrected tax balance, such as a non-capital loss, in a particular taxation year different from that incorrectly assessed in a different, statute-barred taxation year) “supports the view that the ACB used in the 2011 taxation year should be calculated using the correct amounts.”