14 September 1995 External T.I. 9520635 - LIABILITY OF JOINT TENANT FOR DECEASED'S TAXES

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:

application of section 160 to the surviving joint tenant where taxes arise on the deemed disposition of a property held in joint tenancy

Position TAKEN:

section 160 not applicable as no transfer of property takes place notwithstanding the deemed disposition

Reasons FOR POSITION TAKEN:

-while the definition of transfer is very broad (see def'n in Carswell "Words and Phrases, 1993) especially in taxation cases, the surviving joint tenant acquires no rights to the property upon death

-see GST Q&A 13523, November 1993 Round Table

A. Humenuk
XXXXXXXXXX 952063

Attention: XXXXXXXXXX

September 14, 1995

Dear XXXXXXXXXX:

Re: Liability for Taxes under Subsection 160(1) of the Income Tax Act

We are replying to your letter of July 25, 1995 in which you ask for our views on the application of subsection 160(1) of the Income Tax Act (the Act) where the interest of a joint tenant is extinguished upon death and thus the interest of the surviving joint tenant is correspondingly enlarged.

In the situation you describe, an individual and her nephew acquired real property in 1972 as joint tenants and not as tenants in common. They each contributed one half of the purchase price and presumably paid an equal share of the annual maintenance costs relating to the property. The value of the property appreciated considerably with the result that upon the death of the individual, a substantial tax liability arises because of the deemed disposition of her joint tenancy interest in the property. You ask whether subsection 160(1) of the Act would apply to make the nephew liable for any portion of the individual's tax outstanding where the individual's estate is insolvent and unable to pay the tax liability arising from the deemed disposition.

It is settled law that each joint tenant has an identical interest in the whole property and every part of it and that the joint tenants have the right of survivorship in respect of such property. Accordingly, while subsection 70(5) of the Act creates a deemed disposition of the deceased's property for income tax purposes, no actual transfer of property takes place in order to enlarge the interest of the surviving joint tenant. Thus, in the circumstances described and provided that no action has occurred prior to death which would have severed the joint tenancy and created a tenancy in common, it is our view that subsection 160(1) of the Act would not impose a joint liability on the nephew by reason of the nephew's sole ownership of the property previously held in joint tenancy.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuoco
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch