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 CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues:
1. Will subsection 73(1) of the Act apply to a transfer of capital property between a man and a woman in settlement of their rights based on their judicially declared null and void marriage?
Position:
1. The application of subsection 73(1) is not necessarily denied simply because of the void marriage.
Reasons:
1. Using the extended meaning of former spouse in subsection 252(3) of the Act, there could be a qualifying transfer under 73(1.01)(b). Consistent with the last paragraph of ¶7 of Interpretation Bulletin IT- 325R2 and the reasoning in Her Majesty The Queen v. Cecilia Dianne Taylor, Executrix of the Estate of Irving A. Taylor [84 DTC 6234].
2001-009237
XXXXXXXXXX Allan Nelson, C.M.A.
(613) 443-7253
February 8, 2002
Dear XXXXXXXXXX:
Re: Technical Opinion Request
We are writing in reply to your letter to us dated July 12, 2001, concerning the possible application of subsection 73(1) of the Income Tax Act (the "Act").
You have asked us to consider a hypothetical situation where a man and a woman (who are resident in Canada) were living together for almost 20 years following a "marriage" in Nevada. They have adult children from this relationship. They separated in 1997 and have been living apart ever since. A divorce proceeding was taken in the year 2000 and the judgment was issued after April 30, 2001. The judgment declared that the "marriage" was null and void, as being in fraud of Canadian provincial laws. The man and woman want to settle their rights arising from their relationship by transferring from one to the other, for no or little consideration, various capital properties, including stocks and real estate which have appreciated greatly in value (i.e. there is an accrued gain on the capital property).
Your View
For reasons outlined in your letter to us, generally, it is your view that
a) since a judicially declared null and void marriage cannot be a lawful marriage, subsection 73(1.01) of the Act cannot apply, even for a "former spouse" (whose definition is extended by subsection 252(3) of the Act) in settlement of their rights arising out of an "unlawful" marriage. You referred to section 1.1 of the Modernization of Benefits and Obligations Act, which states that marriage is the lawful union of one man and one woman to the exclusion of all others, and
b) the man and woman would not be common-law partners or former common-law partners for the purposes of subsection 73(1.01) of the Act.
Therefore, contrary to your understanding of the intent and spirit of the Act, subsection 73(1) of the Act would not apply in the above hypothetical situation.
As explained in Information Circular 70-6R4, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. If your situation involves a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate Tax Services Office for their views. However, we are prepared to offer the following general comments, which may be of some assistance to you.
In order for subsection 73(1) of the Act to apply, inter alia, capital property must have been transferred in circumstances to which subsection 73(1.01) of the Act applies. Paragraph 73(1.01)(b) of the Act refers to property transferred by an individual to "a former spouse...of the individual in settlement of rights arising out of their marriage...". The extended meaning of "former spouse" in subsection 252(3) of the Act, states, in part, that for the purposes of subsection 73(1) of the Act, former spouse of a particular individual includes another individual of the opposite sex who is a party to a voidable or void marriage with the particular individual.
In Her Majesty The Queen v. Cecilia Dianne Taylor, Executrix of the Estate of Irving A. Taylor [FCTD, 84 DTC 6234], Justice J. Cattanach, quoting Lord Greene, M.R., when he said in De Reneville v. De Reneville, [1948], stated:
"...a void marriage is one that will be regarded by every court in any case in which the existence of the marriage is in issue as never having taken place and can be so treated without the necessity of any decree annulling it.
A voidable marriage is one that will be regarded by every court as a valid subsisting marriage until a decree annulling it has been pronounced by a court of competent jurisdiction."
In addition, as noted in that case, subsection 73(1.2) of the Act, which was the predecessor to subsection 252(3) of the Act, applied expressly for purposes of subsection 73(1) only.
Paragraph 7 of Interpretation Bulletin IT- 325R2, entitled "Property Transfers After Separation, Divorce and Annulment", states the Canada Customs and Revenue Agency's position as follows:
Meaning of Spouse or Former Spouse
7. ...Generally, in cases of the annulment of either void or voidable marriages, provisions in the Act relating to spouses will apply to the parties of annulled marriages between the time of the supposed marriage and the declaration of annulment. Subsection 252(3) provides that, for purposes of subsection 73(1), "spouse" and "former spouse" includes a party to a void or voidable marriage, as the case may be, with the result that a former spouse includes both a divorced person and a party to a marriage which has been annulled.
It is our view that the application of subsection 73(1) of the Act is not necessarily denied simply because a couple's marriage is declared null and void. Using the extended meaning of former spouse in subsection 252(3) of the Act and applying the Interpretation Bulletin position stated above, individuals of the opposite sex who were parties to a void marriage would generally be former spouses of each other. If the other requirements of subsection 73(1) of the Act are met, transfers of capital property between the former spouses in settlement of rights arising out of their [void] marriage would be qualifying transfers pursuant to paragraph 73(1.01)(b) of the Act and they would be subject to the application of subsection 73(1) of the Act. This position is consistent with the reasoning of the Federal Court in the Taylor decision referred to above.
In accordance with paragraph 22 of Information Circular 70-6R4, the above comments are only an expression of opinion, and as such should not be construed as an advance income tax ruling, nor are they binding on the Canada Customs and Revenue Agency.
We hope the above will be of assistance to you.
Yours truly,
Milled Azzi, C.A.
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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