19 March 2001 External T.I. 2001-0071735 - CAPITAL GAINS

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: Amount of capital gains claimed in 1994

Position: Referral to TSO

Reasons: TSO matter

		March 19, 2001

	Kingston Tax Services Office	Headquarters
	Client Services 	S. Parnanzone
Mr. Dave Wilson	Tel. (613)957-2133
	Assistant Director

	Attention: Dave Berofe
		2001-007173

Capital Gains

Further to our March 8, 2001, telephone conversation (Parnanzone /Wilson), we are forwarding the letter of February 19, 2001, from XXXXXXXXXX concerning the capital gains exemption she claimed in 1994 in respect of XXXXXXXXXX. For your information, we have advised XXXXXXXXXX that your office will be providing a reply to her.

The following general comments, which contain statutory references to the Income Tax Act, may be of assistance in reviewing the taxpayer's letter. The February 22, 1994, Federal budget eliminated the $100,000 lifetime general capital gains exemption (previously claimed under subsection 110.6(3)) but did not eliminate the $500,000 lifetime capital gains exemption in respect of qualified farm property and qualified small business corporation shares (claimed under subsections 110.6(2) and (2.1), respectively). The budget also contained an election that allowed an individual to recognize all or part of gains on capital property accrued to February 22, 1994. Generally, an individual had to file an election under subsection 110.6(19) with the 1994 income tax return to recognize an amount of capital gains that could be offset by the unused $100,000 capital gains exemption. In general terms, the recognized capital gain will reduce future capital gains either by increasing the cost of the property elected on or by creating special accounts ("exempt capital gains balance" defined in subsection 39.1(1) in respect of a flow-through entity- e.g., mutual funds - and "exempt gains balance" defined in subsection 14(5) in respect of eligible capital property), which would be drawn down by future capital gains on assets described in those accounts.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Canada Customs and Revenue Agency's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (613)994-2898. A copy will be sent to you for delivery to the client.

M. Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate