3 January 2001 External T.I. 2000-0058135 - INTERSPOUSAL TRANSFERS AND CAPITAL LOSSES

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: In order to transfer a capital loss from a taxpayer to his or her spouse where the taxpayer elects out of subsection 73(1) of the Act, does the spouse have to hold the loss property for at least 30 days after the transfer of the property?

Position: Yes.

Reasons: If the spouse does not own or have a right to acquire the property 30 days after the transfer of the property, there would not be a superficial loss. If there is a superficial loss then paragraph 40(2)(g) would apply to deny the loss and paragraph 53(1)(f) would apply to add the denied loss to the cost of the property held by the spouse.

XXXXXXXXXX 2000-005813
M. P. Sarazin, CA
Attention: XXXXXXXXXX

January 3, 2001

Dear Sirs:

Re: Transfer of Capital Losses Between Spouses

This is in reply to your facsimile of November 24, 2000, requesting clarification of the position expressed in our technical interpretation (file #9726485) (the "Interpretation") issued on January 19, 1998.

The Interpretation dealt with a taxpayer transferring capital property to his or her spouse when they are both resident in Canada and electing not to have the provisions of subsection 73(1) of the Income Tax Act (the "Act") apply to the transfer of property. We noted that if shares are sold at fair market value to a spouse, any capital loss realized on the disposition is denied by virtue of the superficial loss rules as contained in paragraph 40(2)(g) and the definition of "superficial loss" in subsection 54(1) of the Act. In such an event, the amount of the loss which is denied to the taxpayer is added to the adjusted cost base of the shares to the spouse pursuant to paragraph 53(1)(f) of the Act. Therefore, when the spouse disposes of the shares at fair market value (assuming, of course, that the value of the shares has not risen since the spouse acquired them), a capital loss will be triggered in the hands of the spouse.

You have asked us to confirm that the spouse has to hold the transferred property for at least 30 days after the transfer in order to have a superficial loss for purposes of the Act. This fact was not clear in the Interpretation.

Comments

Since paragraph 54(b) of the definition of superficial loss requires that an affiliated person (i.e., the spouse in the above case) must own the acquired identical property at the end of the period that begins 30 days before and ends 30 days after the disposition, we confirm that the taxpayer's spouse would have to hold the transferred property for at least 30 days in order to have the superficial loss rules apply to the transfer of property. If the spouse sells the property within 30 days of acquiring the property from the taxpayer and does not reacquire an identical property by the end of the 30 day period subsequent to the acquisition of the property, there will not be a superficial loss and the capital loss will be realized by the taxpayer and not the transferee spouse.

We trust the above comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate