T5013 ACB for sale of partnership interest

Tax Topics
1

I have a client in his late 80’s (individual) that 20 years ago spent $100,000 to purchase limited partnership shares in a local golf course. Over the last 20 years, he has been getting an annual T5013 slip showing a ‘Limited Parthership business loss’ in box 104 and a decreasing amount of ‘Limited Partner’s at-risk’ amount in box 105. His income is very limited (OAS and CPP) and the losses from line 104 (line 12200 on tax returns) have been giving him zero tax advantage over the years due to his very limited income.

Now, 20 years later, he has sold his interest/shares to someone for $50,000. I have been getting conflicting info from senior agents at the CRA as to how to report the sale, leaving me very confused. One has told me that he would be claiming a capital loss on S3 of $50,000 as I should only be reporting the difference between the purchase and sale price of the shares.

I had some doubts about this agents’ hesitancy so I called back and another agent has told me that I need to calculate the ACB - so $100,000 minus all the box 104 losses over the last 20 years ($75,000) for an ACB of $25,000 - thus claim a gain of $25,000 on the S3 ($100,000 - $75,000 of losses - $50,000 sale price).

What I am trying to wrap my head around which is correct, considering that 20 years ago, the client put out $100,000 - go zero benefit from this investment in 20 years, lost $50,000 upon sale of his shares, and then still might have to pay capital gains on $25,000?

Any input would be greatly apprciated before I spend more time with the CRA

2

The ACB of shares is not the same as the ACB of a partnership interest. First, confirm which your client owned - a T5013 is issued to partners in a partnership, not to shareholders. Assuming it was a partnership interest, your client (or you) should have been keeping track of the ACB of the partnership interest on an annual basis (at minimum), as there are many things which affect it - too many to list and explain here.

As such, the first CRA agent may have assumed that $100,000 was the ACB of the partnership interest, and if so, their guidance was basically correct. But, as the second agent told you, you must use the ACB of the partnership interest to calculate the gain or loss.

Over the years, your client should have been reporting partnership income and/or losses (on his tax returns), but there is usually no reporting of changes to the ACB of partnership interest (unless it goes negative). Bottom line: you may need to examine 20 years worth of the partnership financials to determine what your client’s ACB should be (if nobody has been tracking it).

3

Likely has been benefiting from higher GIS payments as a result of the reported losses.