The units of a partner (apparently, a general partner) were required to be redeemed at 20% per year upon attaining the age of 60. A partner turning 60, whose units had a negative adjusted cost base of $350,000, has 20% of the units redeemed for $200,000. What portion of the negative ACB gain is thereupon realized? CRA responded:
In addition to the gain that must be included in the partner's income under subsection 40(1) [of $200,000], it is also necessary to include an amount calculated in accordance with subsection 100(2) since, in the situation before us and immediately before the redemption, the total of the amounts deductible under subsection 53(2) in computing the ACB of the interest exceeds the total of the cost and the amounts that must be added to the ACB of the interest at that time. Since the partner has disposed of 20% of the partner’s units in the partnership, the CRA is of the view that $70,000 - or 20% of the "negative" ACB immediately before the redemption - must be added in computing the partner's gain from the partial disposition of his interest in the partnership. Thus, the partner will be required to include a gain of $270,000 in the year of redemption.