Calculation of the Adjusted Cost Base of an Interest

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To calculate the adjusted cost base (ACB) of a partner's interest in a partnership at a specific moment, you must adjust the original cost of this interest.

Note

If the interest constitutes a tax shelter investment, see the instructions for boxes 53 through 55 in section 4.4.3 of the Guide to Filing the Partnership Information Return (TP-600.G-V) to find out whether you should take into account certain reductions before you read what follows.

To adjust the original cost of a partner's interest, you must first add to the original cost of the partner's interest (or to the original cost less certain reductions, in the case of a tax shelter investment) the following amounts, among others:

  • the partner's share of the partnership's income and capital gains from all sources, for each fiscal period that ended before the moment in question, from the time the partner acquired the interest in the partnership (note that the amount of capital gains to be added to the initial cost of an interest corresponds to the actual amount of capital gains and any tax-exempt capital gain further to a gift of certain property);
  • the partner's share of the capital dividends or life insurance capital dividends received by the partnership, from the time the partner acquired the interest in the partnership;
  • the partner's additional capital contributions to the partnership, from the time the partner acquired the interest in the partnership;
  • where the partner has been a limited partner or a specified member since becoming a member of the partnership, any amount that, before the moment in question, is deemed to be a capital gain because the ACB of the interest is negative;
  • where, were it not for certain legislative provisions, the partnership would be considered to no longer exist or the partner would no longer be considered a member of the partnership, any amount that, before the moment in question, is deemed to be a capital gain because the ACB of the partner's residual interest, determined at the end of the partnership's fiscal period, is negative.

You must then deduct the following amounts, among others, from the result:

  • the partner's share of the partnership's losses, including capital losses (see the second point in the notes below) from all sources (except any portion of such losses that constitutes a limited partnership loss), resource expenses (Canadian exploration or development expenses, Canadian oil and gas property expenses, foreign resource expenses and share or security issue expenses), and eligible amounts of donations and gifts made by the partnership, for each fiscal period that ended before the moment in question, from the time the partner acquired the interest in the partnership (note that the amount of capital losses to be deducted from the initial cost of an interest corresponds to the actual amount of capital losses);
  • the partner's limited partnership loss for each fiscal period that ended before the moment in question, provided the loss was deducted for a taxation year;
  • the amount that the partner elects to consider a capital loss for the taxation year, for an amount deemed a capital gain because the ACB of the interest is negative;
  • the partner's drawings, from the time the partner acquired the interest until the moment in question;
  • where the partner is a limited partner or has been a specified member since becoming a member of the partnership, the unpaid principal amount of any indebtedness of the partner (for which recourse is limited, either immediately or in the future and either absolutely or contingently), and that can reasonably be considered to have been used by the partner to acquire the interest in the partnership. If the interest is a tax shelter investment, do not take the unpaid principal amount into account in calculating the ACB, as the amount must be used to reduce the cost of the interest.

Complete Schedule A of the information return to provide the information pertaining to the adjustment of the ACB of the partners' interests during the fiscal period.

Note
  • The amount of capital gains to be added to the initial cost of an interest corresponds to the actual amount of capital gains and any tax-exempt capital gain further to a gift of certain property.
  • The amount of capital losses to be deducted from the initial cost of an interest corresponds to the actual amount of capital losses.

Limited partners and specified members

Limited partners and partners who have been specified members since becoming members of a partnership may have to report the ACB of their interest in the partnership as a capital gain if the ACB is negative at the end of the partnership's fiscal period. In such a case, the ACB of the partner's interest immediately after the end of the fiscal period is nil.

Where the partner in question is a corporation, an individual (other than a trust) or an inter vivos trust and the ACB of the partner's interest is positive at the end of a fiscal period of the partnership, the partner may elect to be deemed to have sustained, at that time, a capital loss (the ACB of the partner's interest is thereby reduced by an amount equal to the amount of the capital loss).

For the purposes of Québec legislation, no such election may be made unless it is made under federal legislation with the CRA, in which case it is automatically deemed to be made. If this election is made with the CRA, the partner must send us proof that the election was made.

The capital loss subject to the election made for Québec income tax purposes is equal to one of the following amounts, whichever is less:

  • the amount by which any capital gain resulting from a negative ACB exceeds any capital loss resulting from a positive ACB already deducted;
  • the ACB of the partner's interest at that time; or
  • the amount of the capital loss subject to the election with the CRA plus, if the amount is the maximum amount that the partner could enter, the amount entered on the partner's Québec income tax return.

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