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: What is the cost to the purchaser, a person who is neither a spouse nor a common law partner of the deceased, of property acquired under the terms of a will where the will requires that person to pay an amount (generally less than the FMV) in exchange for the property acquired?
Position: The cost to the purchaser is determined under subsection 107(2) (and indirectly subsection 70(5)).
Reasons: Subsection 248(8) applies to deem the transfer to have occurred as a consequence of death such the cost of the property to the non-spouse who acquires the property is the FMV of the property immediately before the death of the individual whose will provides for the transfer. This situation can be distinguished from the Husel case, which dealt with an intestacy (and thus no bargain purchase offer provided under a will) and the cases of Penner and the Estate of Hrycej, which dealt with transactions occurring before the introduction of subsection 248(8).
XXXXXXXXXX 2007-023242
XXXXXXXXXX, 2007
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
Advance Income Tax Ruling
This is in reply to your letter of XXXXXXXXXX in which you request an advance income tax ruling for the Estate of XXXXXXXXXX and for yourself as Purchaser.
To the best of your knowledge, none of the issues involved in the ruling request is:
- in an earlier return of yourself or a related person,
- being considered by a tax services office or taxation center in connection with a previously filed tax return of yourself or a related person,
- under objection by yourself or a related person,
- before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, or
- the subject of a ruling previously considered by the Directorate in respect of yourself or a related person.
You provided us with a copy of the last will of XXXXXXXXXX. This document is based solely on the facts and proposed transactions described below. The documentation submitted with your request does not form part of the facts and proposed transactions and any references thereto are provided solely for the convenience of the reader.
Except as otherwise noted, all statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act"), and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated. The following terms have the meanings specified:
"Deceased" means XXXXXXXXXX;
"Estate" means the estate of XXXXXXXXXX as administered by the executor named in the Will;
"Property" means the property located at XXXXXXXXXX;
"Purchaser" means XXXXXXXXXX; and
"Will" means the last will of XXXXXXXXXX.
The relevant Tax Services Office for the Purchaser is the XXXXXXXXXX Tax Services Office and the relevant Tax Centre is the XXXXXXXXXX Tax Centre. The relevant Tax Services Office for the Estate is the XXXXXXXXXX Tax Services Office and the relevant Tax Centre is the XXXXXXXXXX Centre.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
1. The Deceased died on XXXXXXXXXX. Under the terms of his Will, the Purchaser has the option, but not the requirement, to acquire the Property for $XXXXXXXXXX to use as a retirement home for himself. In the event that he acquires the Property and later wishes to dispose of it, it is the Deceased's wish that he first offer it to each of XXXXXXXXXX other beneficiaries of the Estate. The Purchaser is also entitled to a portion of the residue of the Estate.
2. The Property consists of a cottage and the land subjacent and contiguous to it. The fair market value of the Property immediately before the death of the Deceased was approximately $XXXXXXXXXX.
Proposed Transactions
3. The Purchaser will exercise the option to acquire the Property for $XXXXXXXXXX and will transfer $XXXXXXXXXX to the executor of the Estate. The executor of the Estate will transfer ownership of the Property to the Purchaser.
4. The executor of the Estate will file the final income tax return for the Deceased with the Canada Revenue Agency as required by law and will pay the amount of any tax owing by the Deceased from the assets of the Estate prior to distributing the residue of the Estate. The executor will distribute the residue, including any portion of the $XXXXXXXXXX not required for the payment of testamentary debts and bequests, according to the terms of the Will.
Purpose of the Proposed Transactions
5. The Purchaser would like to exercise the option to acquire the Property but would like to confirm the tax consequences associated with exercising that option.
Rulings Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions and the purpose of the proposed transactions, the proposed transactions are completed in the manner described above and there are no other transactions that may be relevant to the rulings given, our rulings are as follows:
A. The Deceased will be deemed to have disposed of the Property immediately before death for proceeds of disposition as determined under paragraph 70(5)(a).
B. At the time of death, the cost of the Property acquired by the Estate will be determined under paragraph 70(5)(b).
C. The proceeds of disposition of the Property disposed of by the Estate and the cost of the Property acquired by the Purchaser will be determined under subsection 107(2) such that the Estate will not realize either a capital gain or a capital loss in respect of the disposition of the Property and the Purchaser will acquire the Property at the cost of the Property to the Estate.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 dated May 17, 2002, and are binding on the Canada Revenue Agency provided that proposed transactions as described in paragraph 3 above, are completed within six months of the date of this letter. These rulings are based on the law as it currently reads and do not take into account any proposed amendments to the Act.
XXXXXXXXXX
Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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© Her Majesty the Queen in Right of Canada, 2007
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