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: Taxation of capital gains realized on disposition of shares received on demutualization of insurance corporation.
Position: See Letter
Reasons: See Letter
MAR 05 2001
XXXXXXXXXX
Dear XXXXXXXXXX:
I am replying to your correspondence of January 3, 2001, concerning the taxation of a disposition of shares acquired by a taxpayer on the demutualization of an insurance corporation.
Under the legislation dealing with the demutualization of insurance companies, shares an individual receives for the demutualization have a cost amount for tax purposes of nil. Consequently, the amount of any proceeds received on the disposition of the shares, net of costs incurred to complete the disposition, will be a capital gain realized by the individual. Legislative proposals released December 21, 2000, provide that 50% of capital gains realized by an individual after October 17, 2000, will be included in that individual's taxable income. The actual amount of taxes payable will depend on the individual's tax bracket. The taxes payable will also depend on whether the individual may have realized capital losses in the year or have unclaimed capital losses from preceding years, as such losses may reduce the amount of the capital gain that will be taxed. More detailed information on the application of capital losses to reduce the amount of capital gains subject to tax can be found in the CCRA Guide T4037, Capital Gains, for the year 2000, which should be available soon at local tax services offices.
I trust this information answers your question regarding the tax to be paid on the disposition of shares an individual acquires on the demutualization of an insurance company. Your second question regarding the budgeting process has been referred to officials of the Department of Finance, who will be responding to you separately.
Yours sincerely,
Martin Cauchon
C.C. The Honourable Paul Martin, P.C., M.P.
Minister of Finance
Alison M. Campbell
(613) 957-3496
January 22, 2001
2001-006529
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