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: If spouses transfer their security portfolios (stocks and mutual funds) from individual ownership to joint tenants with rights of survivorship to reduce probate fees is there a deemed disposition and do the attribution rules apply ?
Position: YES 50% is disposed to the other spouse, and attribution rules may apply.
Reasons: 73(1) applies. Capital gains are deferred unless election is made to report proceeds of disposition.
XXXXXXXXXX 1999 - 001413
C. Tremblay
April 4, 2000
Dear XXXXXXXXXX:
Re: Change of Ownership of Capital Properties
This is in reply to your letter of November 30, 1999, wherein you requested us to confirm whether or not changing ownership/registration in securities, mutual funds and bank accounts from individual ownership to "joint tenants with rights of survivorship" result in a deemed disposition of the securities and mutual funds. You are husband and wife, have separate bank accounts and own securities registered in your individual names. You propose to change the legal and beneficial ownership of these capital properties to "joint tenants with rights of survivorship" to facilitate an orderly transfer of the assets to the survivor and to reduce probate fees in the event of either person's demise.
As requested we have considered your enquiry and have provided some comments below. However, we cannot confirm the tax implications of specific transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R3. Thus, our comments are of a general nature only.
Where subsection 73(1) of the Income Tax Act (the "Act') applies and the taxpayer does not opt out of the provision, this subsection allows for the capital property in question (or part thereof) to be transferred to a spouse or to a spouse trust at the transferor's adjusted cost base ("ACB") (or portion of ACB as computed under section 43 of the Act with respect to part dispositions) and the spouse or spouse trust is also deemed to have acquired the capital property for an amount equal to those proceeds. Thus, assuming that the requirements of subsection 73(1) of the Act is otherwise met, and that an election not to have subsections 73(1) of the Act apply is not made, the proceeds of disposition of the transferred property would be deemed to be equal to the ACB of the capital property to the taxpayer immediately before the transfer. The effect of this provision is to defer the recognition of any capital gain or recapture that might otherwise result from a disposition at fair market value. If the transferor elects not to have the subsection apply, then the proceeds of disposition of the transferred property would be deemed to be equal to the fair market value of the capital property immediately before the transfer in accordance with paragraph 69(1)(b) of the Act.
As mentioned above, subsection 73(1) of the Act generally applies unless an election is made to not have it apply. Thus, in a situation where a taxpayer transfers a property into joint tenancy with his or her 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 particular spouse acquiring the property will be deemed to have acquired the property at that time for an amount equal to 50% of the adjusted cost base at that time. While no capital gain would be realized by the transferor, the attribution rules of section 74.1 and 74.2 may apply to attribute to the transferor any 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, a copy of which is enclosed. Generally, where the attributions rules apply, the transferor continues to report the income (interest and dividends) in the same manner he or she reported such income before the capital properties were transferred to joint tenancy. The transferor would also be attributed 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 joint tenancy.
We caution that our comments are not advance income tax rulings but are merely opinions based solely on the information given.
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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