CRA examines a creditor’s seizure of an interest in debtor-partnership

In 2011-0427101C6 (released this week), the CRA was asked whether a creditor’s acquisition of an interest in a debtor-partnership could qualify as a “seizure” of the debtor-partnership’s property for purposes of s. 79.1. Section 79.1 contains rules (often favorable) for a creditor where the creditor has “seized” property of a debtor as a result of a foreclosure, conditional sale repossession, or similar transaction. The statutory test provides that such a property is “seized” by a creditor where “the beneficial ownership of” the property is acquired or reacquired by the creditor (s. 79(2)(a)). Citing the Department of Finance’s 1995 Technical Notes, the CRA said (in the case of a debtor-partnership) that this provision contemplates the creditor acquiring property held directly by the debtor-partnership. In the CRA’s view, the statutory test is not met when the property seized is an ownership interest in the debtor-partnership, notwithstanding that the creditor will have (thereby) acquired an indirect interest in the debtor-partnership’s property.