9 February 2005 External T.I. 2004-0100201E5 - Disp. of Interest in Property-joint ownership

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: The income tax consequences of transferring the ownership of farmland from sole ownership to joint ownership.

Position: Question of fact. In adding another name to the property, there may or may not be a disposition, depending on whether or not there is a change in beneficial ownership.

Reasons: Paragraph (e) of the definition of "disposition" in subsection 248(1) of the Act.

		2004-010020
XXXXXXXXXX 	Karen Power, CA
(613) 957-8953
February 9, 2005

Dear XXXXXXXXXX:

Re: Capital Gain

We are writing in reply to your email of October 26, 2004 wherein you have asked for our comments on the tax consequences of transferring the ownership of your farmland from sole ownership to a joint ownership arrangement between you and your spouse.

Our Comments

Written confirmation of the tax implications applicable to particular transactions is given by this Directorate only if the transactions are proposed and are the subject of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5. However, we are prepared to offer the following general comments.

Whether or not the transfer of your farmland to joint ownership will result in a capital gain is dependent upon whether such a transfer results in a disposition for purposes of the Income Tax Act (the "Act"). A disposition generally does not include a transfer of property where there is no change in the beneficial ownership of the property. It is always a question of fact whether there has been a change in the beneficial ownership. In this regard, reference may be made to paragraphs 2 to 5 of Interpretation Bulletin IT-437R "Ownership of Property (Principal Residence)" which generally discusses beneficial ownership.

If beneficial ownership has not changed, no disposition will have occurred pursuant to subsection 248(1) of the Act on the transfer of the property to a joint ownership arrangement and consequently no capital gain or loss will result. If beneficial ownership does change, it is our view that the transfer of the property solely owned by you into a joint ownership arrangement between you and your spouse, would result in a disposition of 50% of your interest in the farmland.

In a situation where a taxpayer transfers a capital property into joint ownership with his/her spouse, subsection 73(1) of the Act would generally deem the proceeds of disposition to be equal to 50% of the adjusted cost base or the undepreciated capital cost of the property, as the case may be (assuming the taxpayer does not opt out of subsection 73(1) of the Act as explained below). The spouse will be deemed to have acquired the property at that time for an amount equal to those proceeds. This will generally ensure that no capital gain or loss will result on the transfer. While no capital gain would be realized by the transferor, the attribution rules of section 74.2 may apply to attribute to the transferor any capital gains or capital losses resulting from a subsequent disposition. You may wish to refer to Interpretation Bulletin IT-511R for additional information on the application of the attribution rules and to Interpretation Bulletin IT-325R2 for comments on subsection 73(1) of the Act.

The transferor may elect in his or her tax return for the taxation year in which the property is transferred into joint ownership (resulting in a disposition) not to have the provisions of subsection 73(1) apply. In such a situation, the taxpayer's proceeds of disposition will be deemed to be 50% of the fair market value of the property. If the taxpayer chooses to elect not to have the provisions of 73(1) apply, the taxpayer must report any resulting capital gain or loss. In such a situation, if the farmland meets the definition of "qualified farm property", you may then be entitled to claim the capital gains deduction pursuant to subsection 110.6(2) of the Act provided all requirements of that subsection have been met. For information on what is considered to be qualified farm property see guide T4003, Farming Income.

Copies of Interpretation Bulletins and Guides are available from your local tax services office or on the Internet at the following site - http://www.cra-arc.gc.ca/formspubs/type/menu-e.html.

We trust that our comments are of assistance to you.

Yours truly,

Milled Azzi, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch