When the partnership sells eligible capital property, it has to subtract part of the proceeds of disposition from its CEC account.
The partnership has to do this calculation if it sold eligible capital property:
- in its fiscal period; or
- before June 18, 1987, and the proceeds of disposition become due in its fiscal period.
The amount the partnership has to subtract is 75% of the total of these amounts:
- the proceeds of disposition of all the eligible capital property the partnership sells in its fiscal period. The total proceeds of disposition have to be included even if the partnership will not receive the entire amount in the year; and
- the amount of any proceeds that become due in the partnership's fiscal period from eligible capital property it sold before June 18, 1987.
The partnership's CEC account may have a negative amount (excess) after it subtracts the required amount. In this case, the partnership will have to include part of the negative amount in its business income.
Multiply by 2/3 the part of the negative amount in your CEC account that exceeds the annual allowances deducted. To that result, add the lesser of the excess and annual allowances deducted. This is the amount to include in your business income. The following example shows how to calculate the amount to include in your business income.
If you, as a partner in the partnership, have made the capital gains election by filing Form T664, Election to Report a Capital Gain on Property Owned at the end of February 22, 1994, with your 1994 income tax return for your partnership interest, you will have reported the capital gain accrued to February 22, 1994. In this case, the adjusted cost base of your partnership interest has not changed as a result of the election. Rather, you have created a special account called your exempt capital gains balance (ECGB). Your ECGB expired after 2004. If you did not use all of your ECGB by the end of 2004, you can add the unused balance to the adjusted cost base of your shares of, or interest in, the flow-through entity.
You have to include the business income that results from the sale of the eligible capital property on line 8230, “Other income,” on Form T2124 or Form T2032.
Example
You and your partner have operated a telephone sales business since January 1, 1994. Your partnership agreement states that you and your partner will share the business profits equally. The business has a December 31 year-end. You and your partner paid a total of $10,000 for a client list when you started the business. The business has no other eligible capital property. You and your partner sell the business on September 1, 2006. The proceeds of disposition of the client list are $15,000. As a partner of the partnership, you made the capital gains election in 1994 on your partnership interest and your current ECGB is nil. In previous years, the partnership claimed $2,647 as annual allowances on eligible capital property.
Calculation of amount to include in business income -
Sale of client list on September 1, 2006
| The amount to include in the partnership's business income on line 8230, "Other income," on Form T2124 is the total of amounts A and C: |
| Calculation of amount A: |
| The lesser of i) or ii): |
| i) |
Excess amount calculated as follows: |
| |
Actual proceeds of disposition: $15,000
$15,000 × 75% |
$ |
11,250 |
|
| |
Plus: total annual allowances deducted |
|
2,647 |
|
| |
|
$ |
13,897 |
|
| |
Minus: 75% of Eligible capital expenditures
($10,000 + ECGB*) × 75% |
|
7,500 |
|
| |
Excess amount |
$ |
6,397 |
i |
| ii) |
Total annual allowances deducted |
$ |
2,647 |
ii |
| The lesser of i) or ii) |
$ |
2,647 |
A |
| Calculation of amount B: |
| |
Excess amount |
$ |
6,397 |
|
|
|
|
| |
Minus: total annual allowances deducted |
|
2,647 |
|
$ |
3,750 |
B |
| Calculation of amount C: |
| |
Line B × 2/3 |
$ |
2,500 |
C |
| |
Line A plus line C |
$ |
5,147 |
|
| According to this example, you should include $5,147 on line 8230, "Other income" of form T2124 or T2032. |
| *The amount of ECGB used in this calculation refers to any balance remaining in this account after December 31, 2004. |
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