31 March 1994 External T.I. 9406435 - SUCCESSOR RULE - INCOME FROM PARTICULAR PROPERTY

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

		5-940643
XXXXXXXXXX	Peter Lee

Attention: XXXXXXXXXX

March 31, 1994

Dear Sirs:

Re: Production Income from Particular Property of Partnership

This is in reply to your letter of March 9, 1994, wherein you requested our opinion on whether paragraphs 96(1)(f) and (g) of the Income Tax Act, S.C. 1970-71-72, c.63 as amended and consolidated to June 10, 1993 (the "Act"), would apply to income from a partnership. The issue is whether the partner's share of partnership income is considered to retain its character - income from a particular property of the partnership, for the purposes of successor rules under section 66.7 of the Act.

Since the situation described in your letter appears to be related to a situation involving proposed transactions, we are unable to provide specific comments with respect to the income tax consequences arising as a result thereof except in the context of an advance income tax ruling request. However, we are providing the following general comments with regard to the issues raised in your letter which we hope will be useful to you.

In a hypothetical situation wherein: a corporation ("A Co.") had income from its only producing property ("Property A"); A Co. had both successored and unsuccessored resource pools of cumulative Canadian oil and gas property expense, cumulative Canadian development expense and cumulative Canadian exploration expense; the resource pools were successored by virtue of an earlier acquisition of control of A Co. and such successored pools were solely in respect of Property A; the unsuccessored pools related to other property additions and exploration and development expenses incurred subsequent to the acquisition of control; A Co. then entered into a partnership agreement whereby it contributed Property A and all of its other non-producing property to the partnership in exchange for partnership units; A Co. received its pro rata number of partnership units based on the value of the property contributed to the partnership; and paragraph 66.7(10)(j) of the Act did not apply to A Co.

Our Views

In our view, paragraphs 96(1)(f) and (g) of the Act would apply to the above hypothetical situation so that A Co.'s share of income from the partnership would retain its character as income attributable to production from Property A, for the purposes of clause 66.7(3)(b)(i)(C) and subclauses 66.7(4)(b)(i)(A)(II) and (5)(b)(i)(A)(II) of the Act. However, in a situation wherein the change in control of A Co. occurred after (instead of before) A Co. had transferred Property A into the partnership, it is our view that paragraph 66.7(10)(j) of the Act, and not paragraphs 96(1)(f) and (g) of the Act, would specifically apply to A Co. in respect of Property A.

The foregoing comments represent our general views with respect to the subject matter. As indicated in paragraph 21 of Information Circular 70-6R2, the above comments do not constitute an advance income tax ruling and accordingly are not binding on the Department.

Yours truly,

for Director
Manufacturing Industries, Partnerships
and Trusts Division
Rulings Directorate