23 June 2004 Internal T.I. 2004-0067571I7 - Disposition of a property

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.

Principal Issues: Can a taxpayer split the capital gain on the disposition of a cottage between him and his spouse?

Position: The whole capital gain resulting from the disposition of the cottage must be included in the taxpayer's income.

Reasons: The taxpayer is the sole holder of the title of the cottage. The taxpayer did not provide us with evidence that the cottage was not solely his property for the purpose of the Act or that the capital gain should be reattributed.

June 23, 2004

XXXXXXXXXX Taxation Centre HEADQUARTERS
XXXXXXXXXX Sylvie Labarre, CA
Client Services (613) 957-8981
XXXXXXXXXX
2004-006757

Disposition of a cottage

We are writing in response to your memorandum of March 15, 2004 wherein you requested our views concerning a letter received from XXXXXXXXXX (the "taxpayer"), a resident of Ontario, regarding the disposition of his cottage in XXXXXXXXXX.

In his letter, the taxpayer states that he and his wife have owned the cottage for XXXXXXXXXX years, however he also indicates that the title of the cottage was in his name solely. In his view, because the province provides equal ownership for each spouse, the Canada Revenue Agency (CRA) should consider that he and his wife both owned the cottage. The taxpayer made the election for property owned on XXXXXXXXXX in his XXXXXXXXXX tax return with respect to the cottage as if it was wholly owned by him.

In XXXXXXXXXX, the taxpayer would like to split the capital gain on the disposition of the cottage between him and his wife.

Our comment

CRA cannot allow the split of the capital gain on the disposition of the cottage between the taxpayer and his spouse without evidence that the cottage was owned equally by both spouses.

As stated above, the taxpayer held the title of the cottage. However, in the taxpayer's view, the province provides equal ownership for each spouse. That was the only information that the taxpayer gave to support his request. Section 15 of the Family Law Act provides that the property rights of spouses arising out of the marital relationship are governed by the internal law of the place where both spouses had their last common habitual residence or, if there is no place where the spouses had a common habitual residence, by the law of Ontario. As the taxpayer's address is in Ontario, we have assumed that the property rights of spouses are governed by the internal law of Ontario.

Although we do not comment on the internal laws of Ontario and their application to the taxpayer and his spouse, we made some research in order to find the particular provision to which the taxpayer refers when he states that the province provides equal ownership for each spouse. As the taxpayer did not give any detail on his situation, we have assumed that he acquired the cottage using his own funds and efforts and that there was no resulting trust. We did not find any particular provision or law dealing with equal ownership of property for each spouse taking into account those assumptions.

The Family Law Act provides for an equalizing payment when a divorce is granted or a marriage is declared a nullity, or when the spouses are separated and there is no reasonable prospect that they will resume cohabitation. The spouse whose net family property is the lesser of the two net family properties is generally entitled to an equalizing payment of one-half the difference between them. That entitlement to an equalizing payment does not confer upon the non-titled spouse any proprietary rights in any particular property.

Therefore, based on the information provided, it is our view that the taxpayer is the sole owner of the cottage for the purpose of the Income Tax Act. If the taxpayer did not acquire directly or indirectly the cottage from his spouse, the attribution rules will not apply and there will be no capital gain added to the income of the taxpayer's spouse under those rules. Considering that the taxpayer was the sole owner of the cottage, he had to disclose the disposition of the whole property in his XXXXXXXXXX tax return and add the taxable capital gain resulting from the disposition to his XXXXXXXXXX income.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and place in the CRA's electronic library. 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 the client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy 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 (819) 994-2898.

We trust our comments will be of some assistance.

Ghislaine Landry, CGA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate