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:
Is there any capital gains relief (deferral) for a disposition of shares from one spouse to the other?
Position TAKEN:
Yes.
Reasons FOR POSITION TAKEN:
Subsection 73(1) of the Act provides an automatic rollover unless the taxpayers opt out of it.
XXXXXXXXXX 2000-005140
J. Wilson
November 14, 2000
Dear XXXXXXXXXX:
Re: Disposition of Shares to Spouse
This is in reply to your letter of October 7, 2000 wherein you requested our views on whether the transfer of shares to your spouse would result in any immediate tax implications. You have indicated that you acquired shares in XXXXXXXXXX and that, due to your age and health, you would like to transfer these shares to your wife. You are of the understanding that such a transfer could be made without immediate tax implications.
Please note that your request is more in the nature of tax consultation, and the Canada Customs and Revenue Agency does not provide tax planning advice. Accordingly, in light of the tax issues involved, you may wish to consider consulting with a tax advisor. We have, however, provided some general comments.
Subsection 73(1) of the Income Tax Act ("Act") allows for capital property to be transferred to a spouse or to a spouse trust at the transferor's adjusted cost base ("ACB"). The spouse or spouse trust is also deemed to have acquired the capital property for an amount equal to those proceeds. Thus, assuming the requirements of subsection 73(1) of the Act is otherwise met, and that an election not to have subsection 73(1) of the Act apply is not made, the proceeds of disposition upon a disposition (i.e. a transfer of legal and beneficial ownership) of your shares to your spouse would be deemed to be equal to the ACB of those shares immediately before the transfer. The effect of this provision is to defer the recognition of any capital gain that might otherwise result from a disposition to your spouse at fair market value.
As mentioned above, in a situation where a taxpayer transfers legal and beneficial ownership of a property to his spouse, subsection 73(1) of the Act would deem the proceeds of disposition to be equal to the ACB of the property. The particular spouse acquiring the property will be deemed to have acquired the property at that time for an amount equal to the ACB at that time. While no capital gain would be realised by the transferor at that time, the attribution rules of section 74.1 and 74.2 of the Act may apply to attribute to the transferor any future income or losses from the property and any capital gains or capital losses resulting from a subsequent sale. Transfers of property between spouses and the attribution rules are discussed in Interpretation Bulletin IT-511R, Interspousal and certain other transfers and loans of property, a copy of which is enclosed. Generally, where the attribution rules apply, the transferor (while he or she is alive) continues to report the income (e.g. interest and dividends) in the same manner he or she reported such income before the capital properties were transferred to the spouse. The transferor would also be attributed, while he or she is alive, the future capital gains on the capital property and consequently would report the capital gains in the same manner as before the transfer, that is, as if the capital property had not been transferred to the spouse. For greater certainty, any capital gain realised from a disposition of property after the death of the transferor would be reported by the spouse.
In light of the attribution rules and the fact that capital property, upon death, can generally be transferred to a spouse or spouse trust on a tax deferred basis (subsection 70(6) of the Act), a transfer of property to a spouse before death is commonly done for estate planning purposes such as the avoidance of probate fees. Accordingly, again, we suggest you seek the advise of an estate planning consultant or tax advisor.
We trust that these comments will be of assistance.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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