7 April 1999 External T.I. 9832915 - DEEMED DISPOSITIONS

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: Reason for deemed disposition concept under 70(5)

Position: FMV transfer and ACB adjustment to transferee

Reasons: Rules of 70(5)

XXXXXXXXXX 983291
C. Tremblay
April 7, 1999

Dear XXXXXXXXXX:

Re: Deemed Dispositions

This is in reply to your letter of April 30, 1998, which was forwarded to us by the Taxation Services Office of Saint John, New Brunswick, for reply. We apologize for the delay.

Your questions involve the reasons behind the “deemed disposition” concept as used in subsection 70(5) of the Income Tax Act (the “Act”).

Our Comments

The rules concerning the income tax implications when property is transferred among family members have been in place for several years. As you pointed out, the provisions of the law are such that it could have a significant impact on the death of a taxpayer. When property is transferred on death from a parent to a child, the provisions of subsection 70(5) of the Act apply such that a capital gain (or loss) could result. When the rules to tax accrued gains on death were introduced in the Act, it should be noted that the estate tax provisions were repealed. On the other hand, on the death of a spouse, there are rollover rules in subsection 70(6) of the Act that apply to a spouse that acquires certain capital properties (generally, the surviving spouse assumes the deceased taxpayer’s tax cost of the property). Under the specific rules in subsection 70(5) of the Act, an individual who has died is deemed to have disposed, immediately before death each capital property owned immediately before death. The deceased individual is deemed to have received proceeds of disposition for each such property equal to the fair market value at the time of the deemed disposal. A person who, as a consequence of the taxpayer’s death has acquired capital property of the deceased is deemed to have acquired it at a cost equal to the amount the deceased is deemed to have received as proceeds of disposition. Accordingly, in general terms, a deemed disposition occurs at the time of death and accrued gains and losses at the time of death must be accounted for in computing the deemed income of the deceased for the year of death.

We are unable to comment as to the intention of the rules in the Act. As you are likely aware, matters involving tax policy and implementation of tax legislation are the responsibility of the Department of Finance.

We trust the above comments are of assistance

Your truly,

J. F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

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