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 section 43.1 applies to the transfer of property from a sole owner to herself and another person as joint tenants.
Position: General comments.
Reasons: Not enough information provided with request.
XXXXXXXXXX 2002-016859
P. Massicotte, CA, M.Fisc.
February 11, 2003
Dear XXXXXXXXXX:
Re: Life Estates in Real Property
We are writing in response to your letter of October 16, 2002, wherein you requested our comments in respect of the applicability of section 43.1 of the Income Tax Act (the "Act") in a specific situation.
The brief facts described in your letter refer to a situation where real property is transferred from a sole owner to herself and her niece as joint tenants. You add that the initial sole owner in the above situation retains a life interest in the real property as well as a general power of appointment and a power of sale exercisable during her lifetime. You ask whether the transfer of the real property in those circumstances would constitute a disposition of the remainder interest to which section 43.1 of the Act would apply.
The particular situation outlined in your letter appears to be a factual one, involving specific taxpayers. As explained in Information Circular 70-6R5, 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. Should your situation involve 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 provide you with the following general comments.
Section 43.1 of the Act applies only where a taxpayer disposes of a remainder interest in real property and retains a life estate or an estate pur autre vie (lasting the lifetime of another person) in that property.
Based on the limited facts you have provided with your request, it appears the real property is transferred from sole ownership to joint ownership. A joint tenancy is a form of ownership of property in which the joint tenants have concurrent ownership and possession of the same property. Where property is held in joint tenancy, each joint tenant has an undivided interest in the whole and an equal right to its enjoyment during his or her life. Their interests in the property are identical and both joint tenants have undivided possession of the entire property such that the property cannot be sold or mortgaged without the consent of both joint tenants. By operation of the law dealing with property held in joint tenancy, in the event of the death of one of the joint tenants, the property will usually belong solely to the surviving joint tenant.
As a result, it is generally our view that the transfer of property solely owned by a person into a joint tenancy arrangement between that person and another person would result in a disposition pursuant to subsection 248(1) of the Act of 50% of that person's interest in the entire property, unless the transfer did not result in a change in beneficial ownership (in which case a true joint tenancy arrangement would not exist). The concepts of "beneficial ownership" and "legal ownership" as recognized under the common law jurisdictions are discussed in interpretation bulletin IT-437R.
You refer to the initial owner retaining a general power of appointment and a power of sale exercisable during her lifetime, in addition to a life estate. It is always a question of fact, as stated in paragraph 4 of IT-437R, whether a person has beneficial ownership of a particular property. As indicated above, we cannot comment with respect to specific situations other than in the form of an Advance Income Tax Ruling, where all relevant facts and documentation have been reviewed.
However, it is our opinion that where a particular real property solely owned by a person is transferred into a joint tenancy with another person, one in which beneficial ownership has changed, section 43.1 of the Act would not apply to that transfer.
We trust the above comments are of assistance to you.
Yours truly,
Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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