Distributions from a partnership in excess of a partner’s basis in its partnership interest can generate a deemed gain to the partner (s. 40(3.1)). In 2011-0417491E5 (recently released) the CRA said that technically such a gain realized by a non-resident partner would not be taxable in Canada – even if the partnership interest was “taxable Canadian property”. The CRA considers this technical (tax free) result to be contrary to tax policy. Accordingly, the CRA has advised the Department of Finance and would seek to tax any such gain under the general anti-avoidance rule if a transaction resulting in the gain was an “avoidance transaction” (under s. 245(3)). Furthermore, in the CRA’s view, the partner would still have an obligation to file a Canadian tax return reporting the deemed gain (under s. 150(1)(a)(i)(C)).