30 October 2012 Roundtable, 2012-0462831C6 - Ontario CTF Conference 2012- subsection 164(6)

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: Deductibility of probate and related fees by the estate.

Position: May be.

Reasons: Question of fact.

ONTARIO CTF CONFERENCE - October 30, 2012

Question 18

Subsection 164(6) and section 54 definition of "adjusted cost base"

In a recent decision of the Tax Court under the informal procedure in The Estate of the Late Gunnar Brosamler (2012 TCC 204)("Brosamler"), the taxpayer was successful in increasing the adjusted cost base ("ACB") of certain real property held in the estate by a pro-rata amount of the probate and legal fees paid by the estate. The increase in ACB had the effect of increasing the capital loss realized by the estate on the disposition of the properties, which in turn increased the amount of the capital loss that could be applied to the date of death capital gain, pursuant to subsection 164(6).

(a) On the understanding that decisions under the Informal Procedure are not binding and generally cannot be appealed to the higher court, what is CRA's position on the decision?

(b) If CRA agrees with the decision, will other costs borne by the Estate, such as US estate tax, or state estate and inheritance taxes, form part of a property's ACB?

CRA Response

(a) As noted in your question, The Canada Revenue Agency ("CRA") generally does not seek judicial review of decisions rendered under the informal procedure since they are not generally regarded as having precedential value pursuant to section 18.28 of the Tax Court of Canada Act.

The CRA considers that the decision in Brosamler was based on the unique facts of the case. In Brosamler, the court found that in order to acquire the title in the properties sold by the estate, there had to be conveyance of the title from the deceased person to the estate, and the conveyance could not take place until the estate incurred the probate and legal fees. As such, the portion of the fees incurred by the estate to acquire that title could be added to the ACB of the two properties disposed of. The court further noted that even if the fees had not been added to the ACBs for the two properties, they would have been deductible in determining the capital losses on disposition of the properties, because the expense was incurred towards an actual disposition of the property by the estate.

(b) As explained above, the fact that CRA did not appeal the Brosamler decision should not be regarded as precedential. The decision to not appeal the case would have considered the unique facts associated with it. Whether inheritance or other estate taxes incurred outside Canada will form part of the ACB of a property when the property is actually disposed of by an estate will depend upon the facts and the relevant statutory provisions.

Vyjayanthi Srikanth
2012-046283
October 30, 2012