8 June 2005 External T.I. 2005-0116231E5 - Disposition of 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: Whether a disposition of property occurs on the transfer of legal ownership of a property from one individual to a family member

Position: Question of fact. Depends on whether there is a transfer of beneficial ownership

Reasons: See paragraphs 2 to 5 of IT-437R

2005-011623
XXXXXXXXXX G. Moore
(613) 957-8982
June 8, 2005

Dear XXXXXXXXXX:

Re: Disposition of Property

This is in response to your letter of February 15, 2005, wherein you have asked for our comments on the tax consequences of transferring the ownership of your sister's residence to you and then subsequently transferring the ownership from you to your other sister.

You indicate that your sister, who has a disability, was in financial trouble with her house mortgage. As a result, the bank had to foreclose on her property. At that time, you assumed financial responsibility for the house and your sister transferred legal ownership of her house to you for $1. The fair market value of the house was $68,000. Your sister continued to stay in the house and there is no rental income involved. You cannot continue to help your sister so you will transfer legal title for the house to your other sister for $1. You are enquiring whether there will be a capital gain arising on the transfer of title of the house.

The situation outlined in your letter appears to relate to a factual one. It is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advanced income tax ruling. For more information about how to obtain a ruling, please refer to Information Circular 70-6R5, "Advanced Income Tax Rulings, dated May 17, 2002. This Information Circular and other CRA publications can be accessed on the internet at http://www.cra-arc.gc.ca. 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 ("TSO") for their views. A list of TSOs is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following general comments, which may be of assistance.

Whether or not the transfer of legal ownership of your sister's house to you 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 from your sister to you or from you to your other sister and consequently no capital gain or loss will result. If beneficial ownership does change, it is our view that the transfer of the property from your sister to you and then from you to your other sister would result in a disposition of the property.

We have enclosed a copy of IT-437R for your convenience.

We trust that these comments will be of assistance.

Yours truly,

Steve Tevlin
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Planning Branch