Income Tax Act

Marginal note:Disposition of partnership property

• 98 (1) For the purposes of this Act, where, but for this subsection, at any time after 1971 a partnership would be regarded as having ceased to exist, the following rules apply:

  • (a) until such time as all the partnership property and any property substituted therefor has been distributed to the persons entitled by law to receive it, the partnership shall be deemed not to have ceased to exist, and each person who was a partner shall be deemed not to have ceased to be a partner,

  • (b) the right of each such person to share in that property shall be deemed to be an interest in the partnership, and

  • (c) notwithstanding subsection 40(3), where at the end of a fiscal period of the partnership, in respect of an interest in the partnership,

    • (i) the total of all amounts required by subsection 53(2) to be deducted in computing the adjusted cost base to the taxpayer of the interest at that time

    exceeds

    • (ii) the total of the cost to the taxpayer of the interest determined for the purpose of computing the adjusted cost base to the taxpayer of that interest at that time and all amounts required by subsection 53(1) to be added to the cost to the taxpayer of the interest in computing the adjusted cost base to the taxpayer of that interest at that time,

    the amount of the excess shall be deemed to be a gain of the taxpayer for the taxpayer’s taxation year that includes that time from a disposition at that time of that interest.

• Marginal note:Deemed proceeds

  (2) Subject to subsections 98(3) and 98(5) and 85(3), where at any time after 1971 a partnership has disposed of property to a taxpayer who was, immediately before that time, a member of the partnership, the partnership shall be deemed to have disposed of the property for proceeds equal to its fair market value at that time and the taxpayer shall be deemed to have acquired the property at an amount equal to that fair market value.

• Marginal note:Rules applicable if partnership ceases to exist

  (3) If at any particular time after 1971 a Canadian partnership has ceased to exist and all the partnership property has been distributed to persons who were members of the partnership immediately before that time so that immediately after that time each such person has, in each such property, an undivided interest, or for civil law an undivided right (which undivided interest or undivided right is referred to in this subsection as an “undivided interest or right”, as the case may be) that, when expressed as a percentage (referred to in this subsection as that person’s “percentage”) of all undivided interests or rights in the property, is equal to the person’s undivided interest or right, when so expressed, in each other such property, if each such person has jointly so elected in respect of the property in prescribed form and within the time referred to in subsection 96(4), the following rules apply:

  • (a) each such person’s proceeds of the disposition of the person’s interest in the partnership shall be deemed to be an amount equal to the greater of

    • (i) the adjusted cost base to the person, immediately before the particular time, of the person’s interest in the partnership, and

    • (ii) the amount of any money received by the person on the cessation of the partnership’s existence, plus the person’s percentage of the total of amounts each of which is the cost amount to the partnership of each such property immediately before its distribution;

  • (b) the cost to each such person of that person’s undivided interest or right in each such property is deemed to be an amount equal to the total of

    • (i) that person’s percentage of the cost amount to the partnership of the property immediately before its distribution,

    • (i.1) where the property is eligible capital property, that person’s percentage of 4/3 of the amount, if any, determined for F in the definition cumulative eligible capital in subsection 14(5) in respect of the partnership’s business immediately before the particular time, and

    • (ii) where the amount determined under subparagraph (a)(i) exceeds the amount determined under subparagraph (a)(ii), the amount determined under paragraph (c) in respect of the person’s undivided interest or right in the property;

  • (c) the amount determined under this paragraph in respect of each such person’s undivided interest or right in each such property that was a capital property (other than depreciable property) of the partnership is such portion of the excess, if any, described in subparagraph (b)(ii) as is designated by the person in respect of the property, except that

    • (i) in no case shall the amount so designated in respect of the person’s undivided interest or right in any such property exceed the amount, if any, by which the person’s percentage of the fair market value of the property immediately after its distribution exceeds the person’s percentage of the cost amount to the partnership of the property immediately before its distribution, and

    • (ii) in no case shall the total of amounts so designated in respect of the person’s undivided interest or right in all such capital properties (other than depreciable property) exceed the excess, if any, described in subparagraph (b)(ii);

  • (e) if the property so distributed by the partnership was depreciable property of the partnership of a prescribed class and any such person’s percentage of the amount that was the capital cost to the partnership of that property exceeds the amount determined under paragraph (b) to be the cost to the person of the person’s undivided interest or right in the property, for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a)

    • (i) the capital cost to the person of the person’s undivided interest or right in the property is deemed to be the person’s percentage of the amount that was the capital cost to the partnership of the property, and

    • (ii) the excess is deemed to have been allowed to the person in respect of the property under regulations made under paragraph 20(1)(a) in computing income for taxation years before the acquisition by the person of the undivided interest or right;

  • (f) the partnership shall be deemed to have disposed of each such property for proceeds equal to the cost amount to the partnership of the property immediately before its distribution; and

  • (g) where the property so distributed by the partnership was eligible capital property in respect of the business,

    • (i) for the purposes of determining under this Act any amount relating to cumulative eligible capital, an eligible capital amount, an eligible capital expenditure or eligible capital property, each such person is deemed to have continued to carry on the business, in respect of which the property was eligible capital property and that was previously carried on by the partnership, until the time that the person disposes of the person’s undivided interest or right in the property,

    • (ii) for the purposes of determining the person’s cumulative eligible capital in respect of the business, an amount equal to 3/4 of the amount determined under subparagraph 98(3)(b)(i.1) in respect of the business shall be added to the amount otherwise determined in respect thereof for P in the definition cumulative eligible capital in subsection 14(5), and

    • (iii) for the purpose of determining after the particular time the amount required by paragraph 14(1)(b) to be included in computing the person’s income in respect of any subsequent disposition of property of the business, the value determined for Q in the definition cumulative eligible capital in subsection 14(5) is deemed to be the amount, if any, of that person’s percentage of the value determined for Q in that definition in respect of the partnership’s business immediately before the particular time.

• Marginal note:Where s. (3) does not apply

  (4) Subsection 98(3) is not applicable in any case in which subsection 98(5) or 85(3) is applicable.

• Marginal note:Where partnership business carried on as sole proprietorship

  (5) Where at any particular time after 1971 a Canadian partnership has ceased to exist and within 3 months after the particular time one, but not more than one, of the persons who were, immediately before the particular time, members of the partnership (which person is in this subsection referred to as the “proprietor”, whether an individual, a trust or a corporation) carries on alone the business that was the business of the partnership and continues to use, in the course of the business, any property that was, immediately before the particular time, partnership property and that was received by the proprietor as proceeds of disposition of the proprietor’s interest in the partnership, the following rules apply:

  • (a) the proprietor’s proceeds of disposition of the proprietor’s interest in the partnership shall be deemed to be an amount equal to the greater of

    • (i) the total of the adjusted cost base to the proprietor, immediately before the particular time, of the proprietor’s interest in the partnership, and the adjusted cost base to the proprietor of each other interest in the partnership deemed by paragraph 98(5)(g) to have been acquired by the proprietor at the particular time, and

    • (ii) the total of

      • (A) the cost amount to the partnership, immediately before the particular time, of each such property so received by the proprietor, and

      • (B) the amount of any other proceeds of the disposition of the proprietor’s interest in the partnership received by the proprietor;

  • (b) the cost to the proprietor of each such property shall be deemed to be an amount equal to the total of

    • (i) the cost amount to the partnership of the property immediately before that time,

    • (i.1) where the property is eligible capital property, 4/3 of the amount, if any, determined for F in the definition cumulative eligible capital in subsection 14(5) in respect of the partnership’s business immediately before the particular time, and

    • (ii) where the amount determined under subparagraph 98(5)(a)(i) exceeds the amount determined under subparagraph 98(5)(a)(ii), the amount determined under paragraph 98(5)(c) in respect of the property;

  • (c) the amount determined under this paragraph in respect of each such property so received by the proprietor that is a capital property (other than depreciable property) of the proprietor is such portion of the excess, if any, described in subparagraph 98(5)(b)(ii) as is designated by the proprietor in respect of the property, except that

    • (i) in no case shall the amount so designated in respect of any such property exceed the amount, if any, by which the fair market value of the property immediately after the particular time exceeds the cost amount to the partnership of the property immediately before that time, and

    • (ii) in no case shall the total of amounts so designated in respect of all such capital properties (other than depreciable property) exceed the excess, if any, described in subparagraph 98(5)(b)(ii);

  • (e) where any such property so received by the proprietor was depreciable property of a prescribed class of the partnership and the amount that was the capital cost to the partnership of that property exceeds the amount determined under paragraph 98(5)(b) to be the cost to the proprietor of the property, for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a)

    • (i) the capital cost to the proprietor of the property shall be deemed to be the amount that was the capital cost to the partnership of the property, and

    • (ii) the excess shall be deemed to have been allowed to the proprietor in respect of the property under regulations made under paragraph 20(1)(a) in computing income for taxation years before the acquisition by the proprietor of the property;

  • (f) the partnership shall be deemed to have disposed of each such property for proceeds equal to the cost amount to the partnership of the property immediately before the particular time;

  • (g) where, at the particular time, all other persons who were members of the partnership immediately before that time have disposed of their interests in the partnership to the proprietor, the proprietor shall be deemed at that time to have acquired partnership interests from those other persons and not to have acquired any property that was property of the partnership; and

  • (h) where the property so received by the proprietor is eligible capital property in respect of the business,

    • (i) for the purpose of determining the proprietor’s cumulative eligible capital in respect of the business, an amount equal to 3/4 of the amount determined under subparagraph 98(5)(b)(i.1) in respect of the business shall be added to the amount otherwise determined in respect thereof for P in the definition cumulative eligible capital in subsection 14(5), and

    • (ii) for the purpose of determining after the particular time the amount required by paragraph 14(1)(b) to be included in computing the proprietor’s income in respect of any subsequent disposition of property of the business, the value determined for Q in the definition cumulative eligible capital in subsection 14(5) is deemed to be the value, if any, determined for Q in that definition in respect of the partnership’s business immediately before the particular time.

• Marginal note:Continuation of predecessor partnership by new partnership

  (6) Where a Canadian partnership (in this subsection referred to as the “predecessor partnership”) has ceased to exist at any particular time after 1971 and, at or before that time, all of the property of the predecessor partnership has been transferred to another Canadian partnership (in this subsection referred to as the “new partnership”) the only members of which were members of the predecessor partnership, the new partnership shall be deemed to be a continuation of the predecessor partnership and any member’s partnership interest in the new partnership shall be deemed to be a continuation of the member’s partnership interest in the predecessor partnership.