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:
A taxpayer and his spouse will proceed to sell their principal residence which is jointly owned. The proceeds will be shared equally. Each of the taxpayer and his wife will use part of the proceeds to make a gift to their son. The wife will use the remainder of the proceeds to earn investment income. Will section 74.1 result in income of the wife being attributed to the taxpayer or from the son (he is over 18 years of age) to either the taxpayer or his wife? Will section 245(2) apply?
Position TAKEN:
Depending on the source of funds used to purchase the residence, section 74.1 may apply to attribute from the wife to the taxpayer.
The attribution rules of subsection 74.1(2) would not apply to attribute from the son to either parent.
Based solely on the information provided, subsection 245(2) would not apply as a misuse or abuse of the provisions of the Act will not occur.
Reasons FOR POSITION TAKEN:
The above positions are either consistent with the wording of the Act or are based on positions previously taken by the Department.
June 14, 1994
Calgary District Office Head Office
Mr. B. Rooke Rulings Directorate
A/Assistant Director of Audit M. Eisner
(613) 957-8953
940953
Attribution Rules
This is in reply to your memorandum of April 12, 1994 in which you referred to an enclosed letter of March 11, 1994 that was submitted by a taxpayer's accountant in respect of the above-noted subject.
As you have noted in your memorandum, confirmation of the tax consequences of proposed transactions will only be provided in response to an advance income tax ruling request made in accordance with Information Circular 70-6R2 and the related special Release. Accordingly, we provide the following comments which are of a general nature. In the comments that follow, unless otherwise stated, all statute references are to the Income Tax Act S.C. 1970-71-72, c.63 as amended, consolidated to June 10, 1993 (the "Act").
In the type of situation we have been asked to consider, a taxpayer and his wife jointly own a principal residence. Both the taxpayer and his wife have worked an extensive period of time and contributed to the purchase of the principal residence. The taxpayer's income is, however, significantly greater than that of his wife.
The taxpayer and his wife will sell the residence and each will receive 50% of the net proceeds. The gain on the residence will be exempt under the principal residence provisions of the Act. The taxpayer will use part of the proceeds to make a gift to his son who is over the age of 18 years and will use the remainder to acquire a new residence. The wife will also use part of the proceeds to make a gift to the son and will use the remainder to earn property income.
Our comments on the above situation are as follows:
(a)Since the son is over the age of 18, it is our view that the attribution rules in subsection 74.1(2) of the Act would not be applicable. It is also our view, based solely on the circumstances set out above, that subsection 245(2) would not normally be applicable.
(b)As to whether subsection 74.1(1) of the Act applies to attribute income from the wife to the taxpayer depends on the source of funds used to acquire the residence. If the taxpayer and his spouse can each be regarded as having paid 50% of the purchase price of the residence, it is our view that the attribution rules would not apply. On the other hand, if, for example, the taxpayer and his wife, were to be regarded as respectively having paid 75% and 25% of the purchase price, then it would be our view that 50% of the of the wife's investment income would be attributed to the taxpayer on the basis that substituted property as defined in subsection 248(5) of the Act is involved. Similarly, it is our view that 50% of the wife's taxable capital gains (or allowable capital losses) from the sale of substituted property would be attributed to the taxpayer under subsection 74.2(1) of the Act.
(c)Based solely on the circumstances set out above, it our view that subsection 245(2) of the Act would not be applicable.
If further technical assistance is required, we would be pleased to provide our views.
P.D. Fuoco
Section Chief
Personal and General Section
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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