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: Whether a change in the legal title of a parent's investment account to joint tenancy of the parent and the parent's child constitutes a disposition.
Position: It depends on whether there has been a change in beneficial ownership.
Reasons: By virtue of paragraph (e) of the definition of "disposition" in subsection 248(1) of the Income Tax Act, a disposition does not include a transfer of property in which there is a change in the legal ownership without any change in the beneficial ownership.
XXXXXXXXXX 2002-013096
M. Eisner, CA
April 30, 2002
Dear XXXXXXXXXX:
Re: Joint Tenancy - Investments
This is in reply to your letter of March 12, 2002 concerning the ownership of investments.
The information you provided us relates to a specific proposed transaction. Confirmation of the tax consequences of such a transaction will only be provided in response to a request for an advance income tax ruling. The procedures for requesting an advance income tax ruling are set out in Information Circular 70-6R4,"Advance Income Tax Rulings" (enclosed). However, we have proceeded to provide you with general comments (the comments are not binding on the Canada Customs and Revenue Agency) in respect of a situation where a parent ("Individual A"), who has a brokerage account with a financial institution, wishes to change the ownership of the related investments from that of Individual A to a joint tenancy arrangement between Individual A and his or her adult child (the "Child"). The change in legal ownership of Individual A's investments is intended to simplify Individual A's estate and reduce probate fees.
The tax consequences of the above transactions depend on whether they result in a disposition of an interest in the investments to the Child. Paragraph (e) of the definition of the term "disposition" in subsection 248(1) of the Income Tax Act (the "Act") generally provides that a disposition will not occur as a result of any transfer of property as a consequence of which there is no change in the beneficial ownership thereof. It is a question of fact whether there has been a change in the beneficial ownership. In this regard, reference should be made to paragraphs 2 to 5 of Interpretation Bulletin IT-437R "Ownership of Property (Principal Residence)" (enclosed) which generally discusses beneficial ownership.
If a change in beneficial ownership has not occurred so that there is no disposition for income tax purposes, the Child would not be required to include any income or capital gains in income in respect of the investment properties.
On the other hand, if a change in beneficial ownership occurs as a result of the joint tenancy arrangement, Individual A would be considered to have disposed of a 50% interest in each of the properties transferred into the joint tenancy, pursuant to the definition of "disposition" in subsection 248(1) of the Act. Pursuant to paragraph 69(1)(b) of the Act, Individual A's deemed proceeds of disposition in respect of the 50% interest in a property would be 50% of the fair market value of the property at the time of disposition. The adjusted cost base of a 50% interest in property disposed of by Individual A would be equal to 50% of the adjusted cost base of the entire property pursuant to section 43 of the Act.
With respect to the Child, paragraph 69(1)(c) of the Act provides that property acquired by way of gift is deemed to have been acquired at its fair market value. Accordingly, the Child would acquire his or her 50% interest in each particular property at the amount equal to Individual A's deemed proceeds of disposition in respect of the 50% interest in the particular property. As a further comment, the attribution rules would not apply to any income earned on the transferred property as it is assumed that the Child is an adult, such that following the transfer (i.e., the change in beneficial ownership), the Child would have to declare his or her share of the income relating to the investments.
In closing, we note that the confidentiality provisions of the Act do not allow us to discuss the tax affairs of a particular individual without written authorization.
We trust that our comments are of assistance to you. If your client needs further assistance, the client may contact his or her local Tax Services Office.
Yours truly,
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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