4 February 2009 External T.I. 2008-0273641E5 - Gift of Capital Property by will

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 designation made pursuant to proposed subsection 118.1 (6) in respect of a gift of a capital property made by an individual's will override the application of paragraph 70(5)(a) the Income Tax Act?

Position:

Yes

Reasons:

Subsection 118.1 (6) is a more specific provision than subsection 70(5). Therefore, it overrides subsection 70(5).

XXXXXXXXXX 		2008-027364
I. Landry, M. Fisc.
February 4, 2009

Dear XXXXXXXXXX ,

Subject: Disposition of Capital Property by will to a Registered Charity

This is in response to your letter of April 4, 2008 in which you requested a technical interpretation on the application of proposed subsections 118.1(5.4) and (6) as contained in Bill C-10, which was before the Senate prior to the dissolution of Parliament on September 7, 2008.

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").

You described a situation where a Canadian resident individual dies making a bequest of a capital property by his will to a registered charity. The fair market value ("FMV") of the capital property immediately before the individual's death exceeds its adjusted cost base ("ACB"). In accordance with proposed subsection 118.1(6), the deceased's legal representative will designate in the deceased's income tax return an amount between the FMV and the ACB to be the proceeds of disposition of the gifted property.

In the above circumstances, you requested a confirmation that a designation made pursuant to proposed subsection 118.1(6) by the deceased's legal representative will override the application of paragraph 70(5)(a).

The particular situation outlined in your letter appears to relate to a factual one, involving a specific taxpayer. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to offer the following general comments, which may be of assistance.

Paragraph 70(5)(a) is a general provision that deems each capital property owned by a deceased taxpayer to have been, immediately before his or her death, disposed of by the deceased taxpayer for proceeds of disposition equal to its FMV immediately before his or her death.

Proposed subsection 118.1(6) provides that the individual's legal representative can designate in the deceased's income tax return an amount which will be deemed to be the individual's proceeds of disposition of the capital property and for the purpose of proposed subsection 248(31) the FMV of the gift.

In the situation where a designation is made by the deceased's legal representative pursuant to proposed subsection 118.1(6) in respect of a gift of a capital property, it is our view that the resulting deemed proceeds of disposition would be used in calculating the amount of the capital gain arising on the deemed disposition of the gifted property to be included in the individual's final return.

We trust that these comments will be of assistance.

Yours truly,

Louise J. Roy, CGA
Manager
For acting Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch