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: Would a capital loss result on death if the fair market of a debt (note) receivable is less than the ACB of the note? Would 40(2)(e.1) deny the loss ?
Position: Yes, capital loss would result, however 40(2)(e.1) would not deny the loss
Reasons: The individual is deemed to have disposed of the capital property at fair market value immediately before death.
XXXXXXXXXX 2000- 000106
C. Tremblay
Attention: XXXXXXXXXX
June 1, 2000
Dear Sir:
Re: Note Receivable held on death
This is in reply to your letters of December 22, 1999 and January 10, 2000, wherein you requested us to clarify whether or not the provisions of paragraph 40(2)(e.1) of the Income Tax Act (the "Act") would deny the capital loss on death to a taxpayer who holds a note receivable from a company related to him. The fair market value of the note receivable is less than its adjusted cost base immediately before death.
In the year in which a taxpayer who has capital property dies, subsection 70(5) of the Act is relevant. It provides for the deemed disposition of capital property owned by a taxpayer immediately before the death of the taxpayer. Pursuant to paragraph 70(5)(a) of the Act, the taxpayer shall be deemed to have, immediately before the taxpayer's death, disposed of each capital property of the taxpayer and received proceeds of disposition equal to the fair market value of the property immediately before the death. Where a note is held as capital property and paragraph 40(2)(g) of the Act does not otherwise apply, the deemed disposition immediately before death will result in a capital loss where the fair market value of the note receivable is less than the adjusted cost base of the note receivable. In our view, paragraph 40(2)(e.1) of the Act would not apply to deem the capital loss to be nil.
We trust that these comments will be of assistance.
Yours truly,
Jim Wilson
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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