Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Whether the transfer of title of wholly owned property to joint ownership constitutes a disposition when there is no change in beneficial ownership.
Position:
No disposition.
Reasons:
Paragraph (e) of the definition of the term “disposition” in subsection 54(1) of the Act makes it clear that a disposition will not occur as a result of any transfer of property by virtue of which there is a change in legal ownership without any change in beneficial ownership. It is not clear if in such a situation, probate fees upon the death of one of the joint owners would be eliminated.
XXXXXXXXXX 5-980340
Karen Power, C.A.
Attention: XXXXXXXXXX
April 24, 1998
Dear Sirs:
Re: Transfers of Real Property into Joint Tenancy
We are writing in response to your letter dated February 2, 1998, wherein you requested an advance income tax ruling on whether or not children which have received title to property through joint ownership arrangements can avoid future capital gains on the sale of the property or the death of the parent.
As discussed on March 12, 1998 (Power\XXXXXXXXXX), an advance ruling is a written statement given by the Department to a taxpayer stating how it will interpret specific provisions of existing Canadian income tax law in its application to a definite, proposed transaction or transactions which the taxpayer is contemplating. Full disclosure is required and where the transaction is to be completed at some indefinite future time or where satisfactory evidence is lacking that a proposed transaction is being seriously contemplated the request for an advance ruling may be refused. Additionally, where a matter on which a determination is requested is primarily one of fact, and the circumstances are such that all the pertinent facts cannot be established at the time of the request for the advance ruling, an advance ruling will not be granted.
As your request merely involved a hypothetical situation, we were not able to issue an advance ruling, and you have agreed to withdraw your ruling request. A refund of your deposit will follow shortly. In the event that you should later decide to re-submit a ruling request on this matter or a similar matter, we suggest that, in addition to the above requirements, the relevant documents and other information referred to in paragraphs 16(a) to (n) of Information Circular 70-6R3 be submitted with your request. A copy of IC 70-6R3 is enclosed for your files.
Although an advance income tax ruling will not be issued on this matter, we have agreed to provide you with the following comments.
You have described a situation whereby elderly parents (usually a single parent whose spouse has predeceased him or her) are registering their children jointly on the titles to their homes in order to avoid having to probate their estates. In these situations, lawyers and notaries are preparing Statutory Declarations to indicate that the children merely have a registered and not a beneficial interest. You have indicated that while this method does avoid probate, you are concerned that the children may be faced with a potential capital gain on either the sale of the property or the death of the parent.
Paragraph (e) of the definition of the term “disposition” in subsection 54(1) of the Act makes it clear that, for purposes of subdivision c of Division B of Part I of the Act, a disposition will not occur as a result of any transfer of property by virtue of which there is a change in legal ownership of the property without any change in the beneficial ownership thereof. It is a question of fact whether there has been a change in the beneficial ownership. A written agreement would not, in and by itself, be conclusive evidence that beneficial ownership has not changed. In this regard reference should be made to paragraphs 2 to 5 of Interpretation Bulletin IT-437R for the Department’s position on what constitutes beneficial ownership.
In our view, if in fact beneficial ownership has not changed, no disposition for tax purposes will have occurred on the transfer of the property to joint ownership. The child will therefore, not be faced with a capital gain if the property is later sold prior to the death of the parent. However, we would caution you, that in such a situation, a true joint tenancy arrangement does not exist and, in our view, the objective of reducing probate fees is not achieved.
If, however, beneficial ownership does change, it is our view that the transfer of property solely owned by a parent into a joint tenancy arrangement between the parent and a child would result in a disposition pursuant to section 54 of the Income Tax Act (the “Act”) of 50% of his or her interest in the property. Pursuant to paragraph 69(1)(b) of the Act, the deemed proceeds of disposition would be equal to 50% of the fair market value of the property. The adjusted cost base of the interest disposed of would be equal to 50% of the adjusted cost base of the entire property pursuant to section 43 of the Act. By operation of law, upon the death of the parent, the property will pass directly to the child and will not form part of the deceased’s estate hence easing estate administration for probate purposes.
Paragraph 69(1)(c) of the Act provides that property acquired by way of gift is deemed to have been acquired at its fair market value. Thus, the child would acquire his or her 50% interest in the property at the amount equal to the deemed proceeds of disposition to the parent.
The 50% interest in the property retained by the parent would be subject to the provisions of subsection 70(5) of the Act upon the death of the parent (assuming the property has not otherwise been disposed of before that time). At the time of death, paragraph 70(5)(a) of the Act will operate to deem the deceased to have disposed of his joint interest in the property immediately before his death for proceeds equal to the fair market value. For the same reasons, and in accordance with paragraph 70(5)(b) of the Act, the individual acquiring the property (the child) acquires the property at its fair market value. Therefore on the death of the parent no capital gain will accrue to the child.
In our view, if the property is sold prior to the death of the parent, 50% of the proceeds of disposition would be allocated to the child’s interest, and any increase in value from the date of the transfer of the property into joint ownership (assuming a change in beneficial ownership) would create a capital gain.
We trust our comments will be of assistance to you.
Roberta Albert, C.A.
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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