16 January 2001 External T.I. 2000-0033825 - 1994 CAPITAL GAINS ELECTION

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:

Individual was denied forgiveness of Ontario Student Loans because his father elected under subsection 110.6(19) to include a capital gain on capital property held on February 22, 1994. The individual just wanted general information regarding the capital gains election.

Position TAKEN:

General information provided explaining 110.6(19) election.

Reasons: N/A

XXXXXXXXXX 2000-003382
T. Young, CA
January 16, 2001

Dear sir:

Re: Form T664 "Election to Report a Capital Gain on Property
Owned at the end of February 22, 1994"

This is in reply to your letter of June 26, 2000, requesting information explaining the Form T664, "Election to Report a Capital Gain on Property Owned at the end of February 22, 1994". We apologize for the delay in responding to your letter.

In your letter, you explained that in his 1994 income tax return your father elected to include a taxable capital gain of $XXXXXXXXXX in income with respect to his cottage and claimed a capital gains deduction for the same amount. Because the election increased your father's net income for 1994, you were not eligible for forgiveness of any of the loans you received under the Ontario Student Assistance Program in 1994 and 1995. You have requested that we provide you with a copy of the Form T664 and any information explaining how the capital gains election worked.

Our Comments

As you correctly pointed out in your letter, the capital gains election allowed individuals to take advantage of the $100,000 capital gains exemption, which was eliminated after February 22, 1994. By making the election, the individual was deemed to have disposed of capital property at an elected value and to have reacquired the property for the same amount. The elected amount (or "designated proceeds of disposition") was required to be greater than the adjusted cost base, but not greater than the fair market value of the property. Even though no actual disposition of property took place in 1994, the election enabled taxpayers to report a taxable capital gain on their tax return and claim a capital gains deduction to offset all or part of the taxable capital gain. The result is that taxpayers were able to reduce their future income tax liabilities when the property in question was actually sold.

In your father's case, based on the information you provided, his "Total Income" on line 150 of his tax return increased by $XXXXXXXXXX as a result of the election even though there was no corresponding economic gain. As well, he claimed a capital gains deduction of $XXXXXXXXXX so that the net effect on his taxable income was nil.

As you requested, we have enclosed a copy of the Form T664 along with a copy of a pamphlet entitled "1994 Capital Gains Election Package", which contains more information on the election.

We trust our comments will be of assistance to you.

Yours truly,

J. Wilson, CGA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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