In general, the negative ACB of an interest of a general partner does not trigger a capital gain at the end of a fiscal year. The negative ACB does not give rise to a capital gain until the partner disposes of the partnership interest. (A “specified member” of a partnership, on the other hand, must recognize a capital gain at the end of the year if the ACB of its interest is negative at that time.)
If the general partner disposes of its (negative ACB) interest to a non-resident or tax-exempt entity, then the gain arising will be fully included in income (per subsections 100(1) and 100(2)).
Paul Cormack and Janette Pantry, “Negative Partnership Interest ACB” 24:8 Canadian Tax Highlights (August 2016).
