21 April 1998 External T.I. E9807205 - JOINT TENANCY

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 a property into joint tenancy, is a disposition of the entire property or of some lesser share

Position:

Some lessor amount - the portion which has been transferred.

Reasons:

Only the interest in the property which is considered to be transferred (ie 50% when the taxpayer transfers the property to be held in joint tenancy with his spouse) would be disposed.

XXXXXXXXXX 5-980720

Karen Power, C.A.

Attention: XXXXXXXXXX

April 21, 1998

Dear Sirs:

Re: Transfers of Real Property into Joint Tenancy

We are writing in reply to your letter of March 12, 1998, wherein you requested our views on whether the transfer of a property into joint tenancy, is a disposition of the entire property or of some lesser portion.

As an estate planning tool, many farmers consider transferring real property into joint names of themselves and a spouse or a child. As such, the two individuals then own the property as joint tenants (with right of survivorship) and it is legally impossible to specify the interest that any one tenant holds. On the death of one, the property automatically vests solely in the other individual. This is often used as a method to keep that property outside of the probate process.

Transferring the property to joint tenancy may also provide an opportunity to trigger capital gains on the property if the farmer elected out of the rollover provided in subsection 73(1) of the Income Tax Act (the "Act") or was paid fair market value for the property.

Comments

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996. Where

the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department.

It is the Department's view that the transfer of property solely owned by a taxpayer into a true joint tenancy arrangement between the taxpayer and his spouse or child would result in a disposition as title to the property vests in the spouse or child immediately.

In a situation where a taxpayer transfer a property into joint tenancy with his spouse, subsection 73(1) of the Act would deem the proceeds of disposition to be equal to 50% of the adjusted cost base of the property. The spouse will be deemed to have acquired the property at that time for an amount equal to 50% of the adjusted cost base.

The taxpayer may elect in his income tax return not to have the provisions of subsection 73(1) apply. In such a situation the taxpayer will be deemed to have transferred 50% of the property at its fair market value rather than to have it deemed transferred for proceeds equal to 50% of its adjusted cost base. This would provide the opportunity of triggering a capital gain to which the enhanced capital gains exemption available under subsection 110.6(2) of the Act may be claimed.

In a situation where a taxpayer transfers a property into joint tenancy with a child resident in Canada, and before the transfer, the property was used principally in the business of farming in which the taxpayer, the taxpayer's spouse or any of the taxpayer's children was actively engaged on a regular and continuous basis, subsection 73(3) of the Act would deem the proceeds of disposition to be 50% of any amount between the fair market value of the property and its adjusted cost base. The child will be deemed to have acquired the property for an amount equal to the parents proceeds of disposition.

In situations where a parent transfers property to a child for proceeds of nil and the provisions of subsection 73(3) do not apply, the parent will be deemed to have received proceeds of disposition equal to 50% of the fair market value of the property pursuant to paragraph 69(1)(b) of the Act. The adjusted cost base of the interest disposed would be equal to 50% of the adjusted cost base of the entire property pursuant to section 43 of the Act. 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 pursuant to paragraph 69(1)(c) of the Act.

The 50% interest in the property retained by the taxpayer in all of the above situations would be subject to the provisions of subsection 70(5) of the Act upon the death of the taxpayer (assuming the property has not otherwise been disposed of before that time).

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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