Does the lifetime capital gains exemption apply to a partnership interest?

The capital gains deduction in s.110.6 of the Income Tax Act is built around specific kinds of property. In the s.110.6(1) definitions of qualifying property, a partnership interest is itself listed in the qualified farm or fishing property definition; the qualified small business corporation share definition is about shares. Whether a partnership interest in an ordinary business can qualify is a question to put to an accountant, with the facts in front of them. This page describes what the definitions say, not whether your gain qualifies.

What the deduction covers

Section 110.6 refers to qualified farm properties, qualified fishing properties, qualified farm or fishing properties and qualified small business corporation shares. CRA’s page for line 25400 lists dispositions of qualified small business corporation shares and of qualified farm or fishing property.

Farm and fishing partnership interests

Qualified farm or fishing property includes an interest in a family farm or fishing partnership of the individual or of the individual’s spouse or common-law partner. The Act defines that interest as a partnership interest owned by the individual if its conditions are met. One condition is that, at that time, all or substantially all of the fair market value of the partnership’s property was attributable to property described in subparagraph (a)(iv) of that same definition. Read the whole definition in s.110.6(1).

Shares held through a partnership

The definition of a qualified small business corporation share is about shares of a corporation. Paragraph (a) of that s.110.6(1) definition allows the share to be owned by the individual, the individual’s spouse or common-law partner or a partnership related to the individual. Paragraph (b) of the same s.110.6(1) definition requires that, throughout the 24 months immediately before the determination time, the share was not owned by anyone other than the individual or a person or partnership related to the individual. The definition has more conditions, including tests on the corporation’s assets, so a partnership that holds shares is a separate question from a partnership interest.

How partners claim it

CRA says to complete Form T657, Calculation of Capital Gains Deduction, and then claim the amount on line 25400. Its line 25400 page also gives specific instructions for gains reported by a partnership you are a member of, depending on the partnership’s fiscal period.

For the steps of claiming, see how to claim the lifetime capital gains exemption on your tax return.