20 January 2000 Internal T.I. 2000-0000397 - RIGHTS OR THINGS

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. The reason why the deeming provision in subsection 85(1) is not relevant for purposes of subsection 70(3).

2. Whether the term "taxpayer" in paragraph 70(3)(b) refers to beneficiaries as opposed to the deceased.

Position: 1. Paragraph 85(1)(a) deems the elected amount to be the proceeds of disposition whereas subsection 70(3) taxes the amount received on the disposition of the right or thing.

2. Paragraph 70(3)(b) was amended to replace the term "taxpayer" with the term "beneficiary or person".

Reasons: 1. Deeming provisions are generally interpreted strictly. The term "proceeds of disposition" is not the same as the term "amount received".

2. The paragraph had been incorrectly amended in 1985 to use the term "taxpayer".

		January 20, 2000

	Income Tax Appeals Division	Income Tax Rulings
	Lorraine C. Tremblay	 Directorate
	Director	F. Francis
		957-2094
	Attention:  Dave Turner
		2000-000039

XXXXXXXXXX
Transfer of Rights or Things - Section 85 of the Income Tax Act (the "Act")

This is in reply to your memorandum of December 24, 1999, wherein you requested clarification in respect of our comments provided in our letter dated November 4, 1998 (our reference 9642215) ( the "Letter").

You advise that the XXXXXXXXXX Appeals Division is currently reviewing the Notices of Objection for the above-captioned taxpayers and that the taxpayers' representative has requested details as to why subsection 70(3) of the Act overrides subsection 85(1) of the Act.

In particular, you request that we address the following queries:

1. Your analysis indicates that the relevant issue is whether the term "amount received" contained in subsection 70(3) of the Act is identical to the deemed "proceeds of disposition" contained in subsection 85(1) of the Act.

2. You state that paragraph 70(3)(b) of the Act is poorly worded in that the paragraph first refers to the "beneficiaries or other such persons" and then switches to the term "taxpayer". You request our confirmation that the term "taxpayer" refers to the "beneficiaries" as opposed to the deceased taxpayer.

OUR COMMENTS

We will respond to your queries in the order in which they were posed.

1. In the Letter, we noted that the provisions of paragraph 85(1)(a) of the Act deem the elected amount to be the taxpayer's "proceeds of disposition" whereas subsection 70(3) of the Act provides for the taxation of "an amount received .... on the realization or disposition of the right or thing". Consequently, it was our position that the deeming provision under subsection 85(1) of the Act is not relevant in determining the amount received for purposes of subsection 70(3) of the Act. We therefore agree with your analysis.

2. We note that paragraph 70(3)(b) of the Act was amended, in 1998, with respect to taxation years ending after November 12, 1991, and currently uses the terms "beneficiary or person". The related Technical Notes indicate that an amendment was made in 1985 to make the paragraph gender neutral and that the pronouns "his" and "he" were erroneously replaced with the word "taxpayer". The 1998 amendment replaced the word "taxpayer" with the correct term "beneficiary or person".

We trust the above comments are of assistance to you.

Roy Shultis
Director General
Income Tax Rulings Directorate
Policy and Legislation Branch
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