CRA finds that a terminal-return capital gains exemption claimed on bequested shares grinds their ACB for s. 84.1 purposes to the family beneficiaries

The capital gains deduction was claimed in the terminal return of an individual (X) for shares which were bequeathed to his son, and the son then transferred these shares to his holding company.  The principal issue, respecting whether s. 84.1(2)(a.1)(ii) applied to grind the ACB of his shares (by the amount of this claim) for purposes of the application of s. 84.1 to the share transfer to the holding company, turned on this question: was a deduction under s. 110.6 claimed respecting a previous disposition of the shares by an individual with whom the son did not deal at arm’s length?

In responding affirmatively, CRA stated that "the relation between the parties is to be evaluated at the moment giving rise to the application of section 110.6."  Since the disposition giving rise to the capital gain for which the deduction was claimed was deemed by s. 70(5)(a) to have occurred immediately before X’s death (when X obviously was not dealing at arm’s length with his son), the s. 110.6(2.1) claim ground the shares’ ACB for s. 84.1 purposes.

Neal Armstrong.  Q.7 of 9 October 2015 APFF Roundtable under APFF Roundtable.