Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Marginal note:Contribution of property to partnership

• 97 (1) Where at any time after 1971 a partnership has acquired property from a taxpayer who was, immediately after that time, a member of the partnership, the partnership shall be deemed to have acquired the property at an amount equal to its fair market value at that time and the taxpayer shall be deemed to have disposed of the property for proceeds equal to that fair market value.

• Marginal note:Rules if election by partners

  (2) Notwithstanding any other provision of this Act other than subsections (3) and 13(21.2), where a taxpayer at any time disposes of any property (other than an eligible derivative, as defined in subsection 10.1(5), of the taxpayer if subsection 10.1(6) applies to the taxpayer) that is a capital property, Canadian resource property, foreign resource property or inventory of the taxpayer to a partnership that immediately after that time is a Canadian partnership of which the taxpayer is a member, if the taxpayer and all the other members of the partnership jointly so elect in prescribed form within the time referred to in subsection 96(4),

  • (a) the provisions of paragraphs 85(1)(a) to 85(1)(f) apply to the disposition as if

    • (i) the reference therein to “corporation’s cost” were read as a reference to “partnership’s cost”,

    • (ii) the references therein to “other than any shares of the capital stock of the corporation or a right to receive any such shares” and to “other than shares of the capital stock of the corporation or a right to receive any such shares” were read as references to “other than an interest in the partnership”,

    • (iii) the references therein to “shareholder of the corporation” were read as references to “member of the partnership”,

    • (iv) the references therein to “the corporation” were read as references to “all the other members of the partnership”, and

    • (v) the references therein to “to the corporation” were read as references to “to the partnership”;

  • (b) in computing, at any time after the disposition, the adjusted cost base to the taxpayer of the taxpayer’s interest in the partnership immediately after the disposition,

    • (i) there shall be added the amount, if any, by which the taxpayer’s proceeds of disposition of the property exceed the fair market value, at the time of the disposition, of the consideration (other than an interest in the partnership) received by the taxpayer for the property, and

    • (ii) there shall be deducted the amount, if any, by which the fair market value, at the time of the disposition, of the consideration (other than an interest in the partnership) received by the taxpayer for the property so disposed of by the taxpayer exceeds the fair market value of the property at the time of the disposition; and

  • (c) where the property so disposed of by the taxpayer to the partnership is taxable Canadian property of the taxpayer, the interest in the partnership received by the taxpayer as consideration for the property is deemed to be, at any time that is within 60 months after the disposition, taxable Canadian property of the taxpayer.

• Marginal note:Election not available — section 88

  (3) Subsection (2) does not apply to a disposition of a property by a taxpayer to a particular partnership if

  • (a) as part of a transaction or event or series of transactions or events that includes the disposition

    • (i) control of a taxable Canadian corporation (in this subsection referred to as the “subsidiary”) is acquired by another taxable Canadian corporation (in this paragraph referred to as the “parent”),

    • (ii) the subsidiary is wound up under subsection 88(1) or amalgamated with one or more other corporations under subsection 87(11), and

    • (iii) the parent makes a designation under paragraph 88(1)(d) in respect of an interest in a partnership;

  • (b) the disposition occurs after the acquisition of control of the subsidiary;

  • (c) the property

    • (i) is referred to in clauses (A) to (C) of the description of B in subparagraph 88(1)(d)(ii.1), or

    • (ii) is an interest in a partnership that holds, directly or indirectly through one or more partnerships, property referred to in clauses (A) to (C) of the description of B in subparagraph 88(1)(d)(ii.1); and

  • (d) the subsidiary is the taxpayer or has, before the disposition of the property, directly or indirectly in any manner whatever, an interest in the taxpayer.

• (3.1) [Repealed, 1998, c. 19, s. 124]

• Marginal note:Where capital cost to partner exceeds proceeds of disposition

  (4) Where subsection 97(2) has been applicable in respect of the acquisition of any depreciable property by a partnership from a taxpayer who was, immediately after the taxpayer disposed of the property, a member of the partnership and the capital cost to the taxpayer of the property exceeds the taxpayer’s proceeds of the disposition, for the purposes of sections 13 and 20 and any regulations made under paragraph 20(1)(a)

  • (a) the capital cost to the partnership of the property shall be deemed to be the amount that was the capital cost thereof to the taxpayer; and

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

• Marginal note:Acquisition of certain tools — capital cost and deemed depreciation

  (5) If subsection (2) has applied in respect of the acquisition at any particular time of any depreciable property by a partnership from an individual, the cost of the property to the individual was included in computing an amount under paragraph 8(1)(r) or (s) in respect of the individual, and the amount that would be the cost of the property to the individual immediately before the transfer if this Act were read without reference to subsection 8(7) (which amount is in this subsection referred to as the “individual’s original cost”) exceeds the individ­ual’s proceeds of disposition of the property,

  • (a) the capital cost to the partnership of the property is deemed to be equal to the individual’s original cost; and

  • (b) the amount by which the individual’s original cost exceeds the individual’s proceeds of disposition in respect of the property is deemed to have been deducted by the partnership under paragraph 20(1)(a) in respect of the property in computing income for taxation years that ended before that particular time.

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, and

    • (i.1) [Repealed, 2016, c. 12, s. 34]

    • (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,

    • (i.1) if such property is a membership interest in a partnership (in this subparagraph referred to as the “other partnership”), the person’s percentage of the fair market value of the property immediately after its distribution to the person is deemed to be determined by the formula

      A − B

      where

      A

      is the amount that is the person’s percentage of the fair market value (determined without reference to this subparagraph) of the property immediately after its distribution,

      B

      is the portion of the amount by which the person’s percentage of the fair market value (determined without reference to this subparagraph) 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 as may reasonably be regarded as being attributable to the total of all amounts each of which is immediately after the particular time

      • (A) in the case of depreciable property held directly by the other partnership or held indirectly by the other partnership through one or more other partnerships, the amount by which the fair market value (determined without reference to liabilities) of such depreciable property exceeds its cost amount,

      • (B) in the case of a Canadian resource property or a foreign resource property held directly by the other partnership or held indirectly by the other partnership through one or more other partnerships, the fair market value (determined without reference to liabilities) of such Canadian or foreign resource property, or

      • (C) in the case of other property that is not a capital property, a Canadian resource property or a foreign resource property and that is held directly by the other partnership or held indirectly by the other partnership through one or more other partnerships, the amount by which the fair market value (determined without reference to liabilities) of such other property exceeds its cost amount, 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; and

  • (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.

  • (g) [Repealed, 2016, c. 12, s. 34]

• 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, and

    • (i.1) [Repealed, 2016, c. 12, s. 34]

    • (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,

    • (i.1) if such property is a membership interest in a partnership (in this subparagraph referred to as the “other partnership”), the fair market value of the property immediately after the particular time is deemed to be determined by the formula

      A − B

      where

      A

      is the amount that is the fair market value (determined without reference to this subparagraph) of the property immediately after its distribution to the proprietor,

      B

      is the portion of the amount by which the fair market value (determined without reference to this subparagraph) of the property immediately after its distribution to the proprietor exceeds the cost amount to the partnership of the property immediately before its distribution that may reasonably be regarded as being attributable to the total of all amounts each of which is immediately after the particular time

      • (A) in the case of depreciable property held directly by the other partnership or held indirectly by the other partnership through one or more other partnerships, the amount by which the fair market value (determined without reference to liabilities) of such depreciable property exceeds its cost amount,

      • (B) in the case of a Canadian resource property or a foreign resource property held directly by the other partnership or held indirectly by the other partnership through one or more other partnerships, the fair market value (determined without reference to liabilities) of such Canadian or foreign resource property, or

      • (C) in the case of a property that is not a capital property, a Canadian resource property or a foreign resource property and that is held directly by the other partnership or held indirectly by the other partnership through one or more other partnerships, the amount by which the fair market value (determined without reference to liabilities) of such property exceeds its cost amount, 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; and

  • (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.

  • (h) [Repealed, 2016, c. 12, s. 34]

• 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.

• Marginal note:Depreciable property — leasehold interests and options

  (7) For the purposes of paragraphs (3)(c) and (5)(c), a leasehold interest in a depreciable property and an option to acquire a depreciable property are depreciable properties.