Income Tax Act

Marginal note:Disposition of interest in partnership

• 100 (1) If, as part of a transaction or event or series of transactions or events, a taxpayer disposes of an interest in a partnership and an interest in the partnership is acquired by a person or partnership described in any of paragraphs (1.1)(a) to (d), then notwithstanding paragraph 38(a), the taxpayer’s taxable capital gain for a taxation year from the disposition of the interest is deemed to be the total of

  • (a) 1/2 of such portion of the taxpayer’s capital gain for the year from the disposition as may reasonably be regarded as attributable to increases in the value of any partnership property of the partnership that is capital property (other than depreciable property) held directly by the partnership or held indirectly by the partnership through one or more other partnerships, and

  • (b) the whole of the remaining portion of that capital gain.

• Marginal note:Acquisition by certain persons or partnerships

  (1.1) Subject to subsection (1.2), subsection (1) applies in respect of a disposition of a partnership interest by a taxpayer if the interest is acquired by

  • (a) a person exempt from tax under section 149;

  • (b) a non-resident person;

  • (c) another partnership to the extent that the interest can reasonably be considered to be held, at the time of its acquisition by the other partnership, indirectly through one or more partnerships, by a person that is

    • (i) exempt from tax under section 149,

    • (ii) a non-resident, or

    • (iii) a trust resident in Canada (other than a mutual fund trust) if

      • (A) an interest as a beneficiary (in this subsection and subsection (1.2) having the meaning assigned by subsection 108(1)) under the trust is held, directly or indirectly through one or more other partnerships, by a person that is exempt from tax under section 149 or that is a trust (other than a mutual fund trust), and

      • (B) the total fair market value of the interests as beneficiaries under the trust held by persons referred to in clause (A) exceeds 10% of the fair market value of all the interests as beneficiaries under the trust; or

  • (d) a trust resident in Canada (other than a mutual fund trust) to the extent that the trust can reasonably be considered to have a beneficiary that is

    • (i) exempt from tax under section 149,

    • (ii) a partnership, if

      • (A) an interest in the partnership is held, whether directly or indirectly through one or more other partnerships, by one or more persons that are exempt from tax under section 149 or are trusts (other than mutual fund trusts), and

      • (B) the total fair market value of the interests held by persons referred to in clause (A) exceeds 10% of the fair market value of all the interests in the partnership, or

    • (iii) another trust (other than a mutual fund trust), if

      • (A) one or more beneficiaries under the other trust are a person exempt from tax under section 149, a partnership or a trust (other than a mutual fund trust), and

      • (B) the total fair market value of the interests as beneficiaries under the other trust held by the beneficiaries referred to in clause (A) exceeds 10% of the fair market value of all the interests as beneficiaries under the other trust.

• Marginal note:De minimis

  (1.2) Subsection (1) does not apply to a taxpayer’s disposition of a partnership interest to a partnership or trust described in paragraph (1.1)(c) or (d) — other than a trust under which the amount of the income or capital to be distributed at any time in respect of any interest as a beneficiary under the trust depends on the exercise by any person or partnership of, or the failure by any person or partnership to exercise, any discretionary power — if the extent to which subsection (1) would, but for this subsection, apply to the taxpayer’s disposition of the interest because of subsection (1.1) does not exceed 10% of the taxpayer’s interest.

• Marginal note:Exception — non-resident person

  (1.3) Subsection (1) does not apply in respect of a disposition of an interest in a partnership by a taxpayer to a person referred to in paragraph (1.1)(b) if

  • (a) property of the partnership is used, immediately before and immediately after the acquisition of the interest by the non-resident person, in carrying on business through one or more permanent establishments in Canada; and

  • (b) the total fair market value of the property referred to in paragraph (a) equals at least 90% of the total fair market value of all property of the partnership.

• Marginal note:Anti-avoidance — dilution

  (1.4) Subsection (1.5) applies in respect of a taxpayer’s interest in a partnership if

  • (a) it is reasonable to conclude that one of the purposes of a dilution, reduction or alteration of the interest was to avoid the application of subsection (1) in respect of the interest; and

  • (b) as part of a transaction or event or series of transactions or events that includes the dilution, reduction or alteration, there is

    • (i) an acquisition of an interest in the partnership by a person or partnership described in any of paragraphs (1.1)(a) to (d), or

    • (ii) an increase in, or alteration of, an interest in the partnership held by a person or partnership described in any of paragraphs (1.1)(a) to (d).

• Marginal note:Deemed gain — dilution

  (1.5) If this subsection applies in respect of a particular interest in a partnership of a taxpayer, then for the purposes of subsection (1),

  • (a) the taxpayer is deemed to have disposed of an interest in the partnership at the time of the dilution, reduction or alteration;

  • (b) the taxpayer is deemed to have a capital gain from the disposition equal to the amount by which the fair market value of the particular interest immediately before the dilution, reduction or alteration exceeds its fair market value immediately thereafter; and

  • (c) the person or partnership referred to in paragraph (1.4)(b) is deemed to have acquired an interest in the partnership as part of the transaction or event or series of transactions or events that includes the disposition referred to in paragraph (a).

• Marginal note:Gain from disposition of interest in partnership

  (2) In computing a taxpayer’s gain for a taxation year from the disposition of an interest in a partnership, there shall be included, in addition to the amount thereof determined under subsection 40(1), the amount, if any, by which

  • (a) the total of all amounts required by subsection 53(2) to be deducted in computing the adjusted cost base to the taxpayer, immediately before the disposition, of the interest in the partnership,

  exceeds

  • (b) the total of

    • (i) the cost to the taxpayer of the interest in the partnership determined for the purpose of computing the adjusted cost base to the taxpayer of that interest at that time, and

    • (ii) all amounts required by subsection 53(1) to be added to the cost to the taxpayer of that interest in computing the adjusted cost base to the taxpayer of that interest at that time.

• Marginal note:Idem

  (2.1) Where, as a result of an amalgamation or merger, an interest in a partnership owned by a predecessor corporation has become property of the new corporation formed as a result of the amalgamation or merger and the predecessor corporation was not related to the new corporation, the predecessor corporation shall be deemed to have disposed of the interest in the partnership to the new corporation immediately before the amalgamation or merger for proceeds of disposition equal to the adjusted cost base to the predecessor corporation of the interest in the partnership at the time of the disposition and the new corporation shall be deemed to have acquired the interest in the partnership from the predecessor corporation immediately after that time at a cost equal to the proceeds of disposition.

• Marginal note:Transfer of interest on death

  (3) Where by virtue of the death of an individual a taxpayer has acquired a property that was an interest in a partnership immediately before the individual’s death (other than an interest to which, immediately before the individual’s death, section 98.1 applied) and the taxpayer is not a member of the partnership and does not become a member of the partnership by reason of that acquisition,

  • (a) the taxpayer shall be deemed to have acquired a right to receive partnership property and not to have acquired an interest in a partnership;

  • (b) the taxpayer shall be deemed to have acquired the right referred to in paragraph 100(3)(a) at a cost equal to the amount determined to be the proceeds of disposition of the interest in the partnership to the deceased individual by virtue of paragraph 70(5)(a) or 70(6)(d), as the case may be; and

  • (c) section 43 is not applicable to the right.

• Marginal note:Loss re interest in partnership

  (4) Notwithstanding paragraph 39(1)(b), the capital loss of a taxpayer from the disposition at any time of an interest in a partnership is deemed to be the amount of the loss otherwise determined minus the total of all amounts each of which is the amount by which the taxpayer’s share of the partnership’s loss, in respect of a share of the capital stock of a corporation that was property of a particular partnership at that time, would have been reduced under subsection 112(3.1) if the fiscal period of every partnership that includes that time had ended immediately before that time and the particular partnership had disposed of the share immediately before the end of that fiscal period for proceeds equal to its fair market value at that time.

• Marginal note:Replacement of partnership capital

  (5) A taxpayer who pays an amount at any time in a taxation year is deemed to have a capital loss from a disposition of property for the year if

  • (a) the taxpayer disposed of an interest in a partnership before that time or, because of subsection (3), acquired before that time a right to receive property of a partnership;

  • (b) that time is after the disposition or acquisition, as the case may be;

  • (c) the amount would have been described in subparagraph 53(1)(e)(iv) had the taxpayer been a member of the partnership at that time; and

  • (d) the amount is paid pursuant to a legal obligation of the taxpayer to pay the amount.