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: Whether the transfer of title of wholly owned property to joint ownership constitutes a disposition when there is no change in beneficial ownership.
Position: No disposition.
Reasons: Paragraph (e) of the definition of the term "disposition" in subsection 54(1) of the Act makes it clear that a disposition will not occur as a result of any transfer of property by virtue of which there is a change in legal ownership without any change in beneficial ownership. It is not clear if in such a situation probate fees upon the death of one of the joint owners would be eliminated.
XXXXXXXXXX 2000-004819
Annemarie Humenuk
March 7, 2001
Dear XXXXXXXXXX:
Re: Joint Ownership and Beneficial Ownership
This is in reply to your letter of September 13, 2000, in which you ask for confirmation that you will not be considered to have disposed of your property when you transfer it to an account that is registered in your name and that of your children. We apologize for the delay in our response.
You state that you are the sole beneficial owner of property that is held in a joint account. You report all of the income from the property held in this account and your children recognize that they have no beneficial ownership in any of the property held in this account. You state that the joint account was set up for estate planning purposes and that you plan on transferring additional property to this account.
Written confirmation of the tax consequences of a particular proposed transaction is given by this Directorate only by way of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R4. As noted in paragraph 15 of the circular, a ruling cannot be issued where the determination requested is primarily one of fact and the circumstances are such that all the pertinent facts cannot be established at the time of the request. Where the particular transactions are complete, the enquiry should be addressed to the relevant tax services office. However, we are prepared to offer the following general comments.
It is a question of fact as to whether there has been a change in the beneficial ownership of a property in any particular situation. This determination must be made on the basis of the relevant law relating to property ownership. A statutory declaration or written agreement or the lack of such would not, in and by itself, be conclusive evidence as to whether beneficial ownership has changed. Paragraphs 2 to 5 of Interpretation Bulletin IT-437R discuss the concepts of "beneficial ownership" and "legal ownership". However, as stated in paragraph 4, these comments are subject to any determination under the law regarding beneficial ownership.
A joint tenancy is a form of ownership of property in which the joint tenants have concurrent ownership and possession of the same property. The interest of each joint tenant is identical and the property cannot be sold or mortgaged without the consent of both joint tenants. By operation of the law dealing with property held in joint tenancy, in the event of the death of one of the joint tenants, the property will belong solely to the surviving joint tenant. As the deceased joint tenant has no interest in the property on death, it does not form part of the deceased's estate and, thus, it is not necessary for a grant of probate to be obtained.
It is generally presumed that a transfer of property from a parent to a child, including a transfer of property into joint ownership, is a gift to the child unless a contrary intent is evident. Where a contrary intent is evident, the presumption of gift is rebutted and the child then holds the legal title in trust for the parent and the parent's estate. This type of "in trust" arrangement is referred to in "trust law" as a resulting trust. Probate, to the extent it is necessary, is not eliminated in such a case since, on the parent's death, the property is part of the parent's estate.
Paragraph (e) of the definition of the term "disposition" in subsection 54 of the Income Tax Act makes it clear that, for purposes of the Act, a disposition does not occur on the transfer of property where the change in legal ownership of the property does not involve a corresponding change in the beneficial ownership. Although amendments have been proposed by the Department of Finance in respect of the definition of "disposition", the proposed changes would not affect the determination of whether a disposition occurs in the scenario you describe, unless the transfer involves a trust. In the example of the resulting trust described in the preceding paragraph, the trust will be ignored for the purpose of the proposed changes if the child can reasonably be considered to act as agent for the parent in all dealings with all of the property held in the resulting trust for the parent beneficiary.
In summary, it is our view that no disposition occurs for tax purposes on the transfer of property into joint tenancy provided that the beneficial ownership does not, in fact, change and the other joint tenants can reasonably be considered to act as agent for the beneficial owner in respect of all dealings with the property. However, in our view a true joint tenancy arrangement does not exist in such a situation and the objective of reducing probate fees is not achieved. If, on the other hand, a change in beneficial ownership does occur on the transfer of the property into joint tenancy, a disposition does occur. Pursuant to paragraph 69(1)(b) of the Act, the deemed proceeds of disposition of the property would be equal to the fair market value of the share of the property disposed of.
We trust our comments will be of assistance to you.
Yours truly,
T. Murphy
for Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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