CRA finds that s. 13(7)(e)(ii) applies to a cross-border non-arm’s length gift of a foreign building

A resident individual received a gift of (or alternatively, an inheritance of) a foreign rental property from a non-resident relative. The building component had a cost to the non-resident of $1.0 million and a current FMV of $1.4 million.

Regarding the gift, CRA noted that although s. 69(1)(c) deemed the building’s cost to the resident to be its FMV of $1.4 million, the ½ step-up rule in s. 13(7)(e)(ii) reduced its capital cost to $1.2 million, so that the starting UCC of the building would also be that amount.

S. 13(7)(e)(ii) does not apply where the transfer is as a consequence of the death of the transferor. Accordingly, the cost to the resident of the building on its inheritance would be the full $1.4 million.

Neal Armstrong. Summary of 4 June 2024 STEP Roundtable, Q.12 under s. 13(7)(e)(ii).