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: What would be the deemed cost, if any, to a deceased taxpayer's estate of a Canadian resource property acquired from the deceased taxpayer?
Position: The cost would be nil.
Reasons: In a situation wherein a deceased taxpayer's estate which is a "personal trust" would acquire a "Canadian resource property" within the meaning of the expressions in subsection 248(1) of the Act and there would be no subsequent transfer nor distribution of the property to the taxpayer's spouse or a spousal trust, by virtue of paragraph 70(5.2)(a) of the Act, the taxpayer would be deemed to have, immediately before his/her death, disposed of the Canadian resource property and received proceeds of disposition therefor equal to its fair market value immediately before death. However, unlike the provisions such as subparagraphs 70(5.2)(b)(ii) and (d)(ii) and paragraph 70(5)(b) of the Act, in respect of resource property, land inventory and capital property, respectively, which deem a cost of certain amount to a deceased taxpayer's estate or to his/her spouse or spousal trust, as the case may be, for the property acquired from the deceased taxpayer, in the case at hand there would be no deemed cost to the estate under section 70 of the Act for the acquisition of the Canadian resource property by the estate from the deceased taxpayer. Furthermore, we also note that no one would have a cost in respect of the acquisition of the Canadian resource property under subsection 107(2), paragraph 69(1)(c) or any other provisions of the Act.
Peter Lee
XXXXXXXXXX (613) 957-8977
2000-001866
Attention: XXXXXXXXXX
May 11, 2000
Dear Sir:
Re: Cost of Canadian Resource Property to Deceased Taxpayer's Estate
This is in reply to your letter of March 31, 2000 wherein you have requested our view on what would be the deemed cost to a deceased taxpayer's estate of a Canadian resource property acquired from the deceased taxpayer for the purpose of the Income Tax Act (the "Act"). In particular, you have requested our view on whether paragraph 69(1)(c) of the Act, or any other provisions thereof, would apply to deem such a cost amount to be greater than nil.
1. In a situation wherein a deceased taxpayer's estate which is a "personal trust" would acquire a "Canadian resource property" within the meaning of the expressions in subsection 248(1) of the Act and there would be no subsequent transfer nor distribution of the property to the taxpayer's spouse or a spousal trust, by virtue of paragraph 70(5.2)(a) of the Act, the taxpayer would be deemed to have, immediately before his/her death, disposed of the Canadian resource property and received proceeds of disposition therefor equal to its fair market value immediately before death. However, unlike the provisions such as subparagraphs 70(5.2)(b)(ii) and (d)(ii) and paragraph 70(5)(b) of the Act, in respect of resource property, land inventory and capital property, respectively, which deem a cost of certain amount to a deceased taxpayer's estate or to his/her spouse or spousal trust, as the case may be, for the property acquired from the deceased taxpayer, in the case at hand there would be no deemed cost to the estate under section 70 of the Act for the acquisition of the Canadian resource property by the estate from the deceased taxpayer.
2. We considered whether paragraph 69(1)(c) of the Act would apply to deem the Canadian resource property to be acquired by the estate at its fair market value at the time of such acquisition. However, it is our view that the requirement under this paragraph that the estate must acquire the Canadian resource property "by way of gift, bequest or inheritance" would not be met because no gift, bequest nor inheritance was provided to the estate. Accordingly, there would be no such deemed cost to the estate under paragraph 69(1)(c) of the Act.
3. We also considered whether paragraph 69(1)(c) of the Act would apply to deem the Canadian resource property to be acquired by the taxpayer's heir (i.e., the capital beneficiary) at its fair market value at the time of such acquisition upon the distribution of the estate's assets to its capital beneficiary. By virtue of the pre-amble to this paragraph - "except as expressly otherwise provided in this Act", the provision in this paragraph would apply only if the transactions are not covered by any other express provisions of the Act. In the case at hand, we note that subsection 107(2) of the Act would apply to the distribution of the Canadian resource property to the capital beneficiary by the personal trust (i.e., the estate) in satisfaction of all or any part of his/her capital interest in the trust. Accordingly, it is our view that paragraph 69(1)(c) of the Act would not apply to the taxpayer's heir in this case. On the other hand, as discussed above, there would be no deemed cost in respect of the acquisition of the Canadian resource property by the estate and since the estate would not pay anything for the property, the cost of the property to the estate would be nil. As a result, upon the distribution of the property by the estate to the taxpayer's heir, the cost of the property to the heir would also be nil pursuant to paragraph 107(2)(b) of the Act.
4. We note that in the case at hand no one would have a cost in respect of the acquisition of the Canadian resource property, even though the deceased taxpayer would have been deemed, immediately before his/her death, to dispose of the property and to receive proceeds of disposition therefor equal to its fair market value immediately before death. We will bring this matter to the attention of the Department of Finance for their consideration.
We hope that our comments are helpful to you. These are only our general views on the matter and do not constitute an advance income tax ruling and accordingly they are not binding on the Canada Customs and Revenue Agency in accordance with paragraph 22 of Information Circular IC 70-6R3 as amended.
Yours truly,
John Chan, CA
Manager
Resource Industries Section
Resources, Partnerships and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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