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Can advances to limited partners give rise to negative-ACB gains?


Area Tax


Article originally published in the Canadian Tax Focus, Volume 7, Number 1, February 2017

Excerpt from "Can advances to limited partners give rise to negative-ACB gains?":

The CRA stated in a recent TI (2016-0637341E5, June 27, 2016) that a loan of current-year cash flow received by a limited partner from a Quebec limited partnership may be treated as an amount received "in lieu of" a distribution of the partner's share of the partnership's profits for the purposes of the ACB reduction rule in subparagraph 53(2)(c)(v), even if the loan is legally valid under Quebec partnership law and is not a sham. This position calls into question the effectiveness of a commonly used planning technique whereby a limited partnership advances rather than distributes its profits to its members during its fiscal year in order to avoid triggering a negative-ACB gain under subsection 40(3.1).

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