Tax Court of Canada


Income tax

Capital gains and losses

Changes in relative interest of partnership not recognized as acquisition of separate property

Corporate taxpayer formed limited partnership with another corporation in taxpayer’s group of companies. Taxpayer transferred shopping centres to partnership and then taxpayer disposed of its interests in partnership to another corporation in its group of companies, in exchange for shares. Subsequently, taxpayer transferred all of its shares in partnership to same corporation, and corporation wound up partner with result that corporation was sole partner in partnership. Taxpayer claimed capital loss on basis that that partnership interest increased by both fair market value of property and elected amount, arguing that s. 97(2)(b) of Income Tax Act (ITA) applied at any time after transfer of assets and did not preclude ordinary adjusted cost base (ACB) rules in s. 54 of ITA at time of transfer. Minister denied capital loss based on taxpayer’s reasoning and reassessed transaction as realization of capital gain instead – Taxpayer appealed. Appeal dismissed. Taxpayer’s counsel admitted that result of taxpayer’s interpretation of s. 97(2)(b) of ITA was absurd and that this result must not have been intended by Parliament. There was no possibility of successful argument that cost of increase in partnership interest should be captured under s. 54 in addition to s. 97(2) adjustment. Subsections (i) and (ii) under s. 97(2)(b) of ITA did not recognize changes in relative interest of partnership as acquisition of separate property nor issuance of additional units in partnership. There was no room for taxpayer’s interpretation of text of s. 97(2) of ITA and definition of ACB in s. 54 of ITA, if read in context and having regard to their purpose.

Iberville Developments Limited v. The Queen (2018), 2018 CarswellNat 2658, 2018 TCC 102, Patrick Boyle J. (T.C.C. [General Procedure]).

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