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:
(1) Farm land is held by two brothers as tenants in common. The land is to be split so that one brother will own half the land outright while the other brother will own the other half outright. Can this be done without attracting any capital gains?
(2) Instead of owning the property outright, can putting each respective brother's spouse as joint tenant of the land be deemed to have happened some twenty years ago at the commencement of the farming business?
Position:
(1) Yes or at least a portion of the potential capital gain.
(2) No.
Reasons:
(1) Partition of property pursuant to subsections 248(20) and (21).
(2) There is no provision that would permit such a retroactive effect.
XXXXXXXXXX 2000-000309
J. E. Grisé
April 5, 2000
Dear XXXXXXXXXX:
Re: Farm Land Ownership
This is in reply to your letter of January 14, 2000, requesting our opinion concerning farm land that was given to two brothers (Mr. A and Mr. B) by their father some twenty years ago. The land was registered in the names of Mr. A and Mr. B as tenants-in-common.
In the situation you have outlined, Mr. A and Mrs. A and Mr. B and Mrs. B have farmed for the past twenty years in a farming partnership. Mr. and Mrs. A now want to leave the farm partnership. Mr. A and Mr. B want to rearrange the land holdings so that Mr. A owns certain lands and Mr. B owns certain lands so that their two names are no longer on each title as tenants-in-common.
The particular circumstances in your letter on which you have asked for our opinion appear to be a factual situation involving specific taxpayers. As explained in paragraph 22 of Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Agency.
The rearrangement of the land holding between Mr. A and Mr. B. is commonly referred to as a partition of the land. Subsections 248(20) and (21) of the Income Tax Act (the Act) specifically deal with the partition of property.
Subsection 248(21) of the Act applies where a co-owner receives, upon the partition of a property, title to a separate piece of property whose fair market value equals the fair market value of the co-owner's previous interest. In such a situation, paragraph 248(21)(a) of the Act deems the co-owner's new interest to be a continuation of the co-owner's undivided interest in the property immediately before the partition. In other words, the co-owner will have neither disposed of nor acquired any property and, as a result, there is no capital gain or loss upon the partition of the property.
Subsection 248(20) of the Act applies where the fair market value of the separate piece of property received by a co-owner upon partition is less or greater than the fair market value of the co-owner's previous interest. Where the value is less, the co-owner is deemed to have disposed of the part of the interest in the property attributable to the shortfall. An amount received by such a co-owner because of an unequal partition could result in a gain or loss from the disposition. Where the value is greater, the co-owner is deemed to have acquired an interest in the property attributable to such excess.
Instead of having the title to the partitioned property allocated to a particular brother in the name of that brother, you are considering having the title put in the name of the particular brother and that brother's spouse as joint tenants. You ask if this transaction can be deemed to have happened some twenty years ago at the commencement of the farming business so that the spouses can share in the accrued capital gains in the land values over the years that they were involved as farmers? There is no provision in the Act that would permit such a retroactive effect. However, it seems that even if a portion of each brother's interest in the farm land had been transferred to their respective spouses, the attribution rules in subsection 74.2(1) of the Act would apply to deem any taxable capital gains on disposition to be that of the transferor and not that of the transferee.
We hope our comments are helpful.
Yours truly,
John Oulton
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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