30 May 2002 External T.I. 2002-0134345 - DECEASED'S INTEREST IN JOINT TENANCY

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 subsections 70(6) and 40(4) of the Act would apply when the taxpayer becomes the sole owner of the property at the time the spouse dies?

Position: Yes, unless an election under subsection 70(6.2) of the Act to not have this provision apply is made.

Reasons: Previous interpretations.

XXXXXXXXXX 2002-013434
J. Gibbons, CGA
May 30, 2002

Dear XXXXXXXXXX:

We are replying to your letter dated April 10, 2002, concerning the principal residence exemption in paragraph 40(2)(b) of the Income Tax Act (the "Act"). Since some of your questions appear to relate to past events, we wish to advise you that the local tax services offices are responsible for providing guidance on completed transactions. Nonetheless, we have provided some general comments below.

In brief terms, you have asked us to consider the following:

? The taxpayer's spouse (the "spouse") was the sole owner of a personal residence (the "property") in 1994.

? The spouse filed a T664 , "Election to report a capital gain on property owned at the end of February 22, 1994," and a T2091 (IND), "Designation of a property as a principal residence by an individual (other than a prescribed trust)," in respect of the property with the 1994 tax return.

? Subsequently, the ownership of the property was changed to a joint tenancy arrangement with the taxpayer and the spouse as joint tenants.

? The spouse died, and the taxpayer became the sole owner of the property.

You enquired whether subsections 70(6) and 40(4) of the Act would apply when the taxpayer becomes the sole owner of the property at the time the spouse dies?

In our view, subsection 70(6) would apply to the transfer of the spouse's joint interest in the property to the taxpayer, as described above, provided that the representative of the spouse's estate does not file an election under subsection 70(6.2) of the Act to not have this provision apply. Since subsection 40(4) applies in circumstances to which 70(6) applied, this former provision would also apply to such a transfer.

You enquired whether, upon the death of the taxpayer and the transfer of the property to an adult child, the estate of the taxpayer would have to file Forms T2091 and T2091 (IND) - WS, rather than Forms T1079 and T1079 - WS, in respect of the property?

Since it is the taxpayer who is disposing of the property, i.e., pursuant to paragraph 70(5)(a) of the Act, Forms T2091 and T2091(IND)-WS, which pertain to individuals, would have to be filed in order to claim the principal residence exemption in respect of the property on the taxpayer's final return.

We trust that these comments will be of assistance. However, since your situation involves the interpretation of relatively complex provisions of the Income Tax Act, you may wish to consider obtaining professional advice if you need further assistance.

Yours truly,

John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate

??