2014-0540611E5 subsection 98(3) election

Principal Issues: 1. Whether a subsection 98(3) election is valid where a particular property of a partnership was not included as part of the election? 2. Can a subsection 98(3) election be amended to include a particular property that was not included in the original election filed?

Position: 1. No. 2. No.

Reasons: 1. Subsection 98(3) requires that, in order to be valid, an election must be in respect of all of the partnership property; 2. There is no discretion allowed under the Income Tax Act or Income Tax Regulations to accept amended elections.

Author: Friedlander, Lara G.
Section: 98(3), 220(3.2), section 600 of the Regulations

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                                                                                                                                                       2014-054061
                                                                                                                                                        L. Friedlander

October 6, 2014

Dear XXXXXXXXXX:

Re:  Subsection 98(3) Election

This is in response to your email of July 18, 2014, concerning an election under subsection 98(3) of the Income Tax Act (Canada) (the “Act”).

In particular, you asked for our views about whether an election under subsection 98(3) is valid if the election was filed in prescribed form but failed to include a particular property of the partnership.  You have asked us to confirm that the election is valid and will apply to all of the partnership’s properties. All of the other requirements of subsection 98(3) are met. The partnership property that was not included in the election was distributed in accordance with the requirements under subsection 98(3) of the Act.

Our Comments

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R6, Advance Income Tax Rulings, dated August 29, 2014.  Also, where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. Nonetheless, we have provided some general comments below.  

Subsection 98(3) of the Act provides for a rollover of property when a partnership ceases to exist provided certain conditions are met. All of the partnership property must be distributed to persons who were members of the partnership immediately before the partnership ceased to exist, subject to certain additional requirements. Each member of the partnership must jointly elect in prescribed form (Form T2060, Election for disposition of property upon cessation of partnership) to make an election in respect of the partnership property. Subsection 98(3) of the Act contemplates an election “in respect of the property”.  In our view, the reference to “the property” is a reference to the phrase “all the partnership property” earlier in the preamble of subsection 98(3) of the Act.  Accordingly, an election under subsection 98(3) of the Act is not valid unless the election is made in respect of all of the property of the partnership. 

Subsection 220(3.2) of the Act gives the Minister of National Revenue discretion to extend the time for making certain elections or to grant permission to amend or revoke certain elections.  A list of these elections is set out in section 600 of the Income Tax Regulations (the “Regulations”).  The election under subsection 98(3) of the Act is not among the elections listed in section 600 of the Regulations.  Accordingly, there is no discretion to permit an amended election under subsection 98(3) of the Act. 

We trust that these comments will be of assistance.

Yours truly,

G. Moore
For Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

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